NEW DELHI: Banking industry will require additional capital of `84,000 crore after the Reserve Bank of India (RBI) increased risk weights on consumption loans, credit card exposures, and loans to scheduled commercial banks (SCBs) and non-banking financial companies (NBFCs) by 25%, State Bank of India (SBI) said in a report.
The impact of the circular is limited to consumer loans. Housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery do not fall under its purview. The affected portion of loans is nearly 31% of the total personal loans.
“These actions can be seen as countercyclical measures aimed at stabilising the business cycle by restraining economic activity during booms and supporting it during downturns, as per SBI. In an opposite vein, during September 2004 to August 2008, risk weights and provisioning prescriptions were tightened periodically by RBI as a countercyclical measure,” said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI. As a pro-active measure, risk weights for capital market exposure, real estate and housing sector were tightened even as these sectors were becoming over-heated.
“However, we believe the action by RBI is to do more with complementing the past monetary policy action via non rate actions now, rather than any specific concern,” the report added. Meanwhile, Mahesh Shukla CEO & founder PayMe, said the higher risk weight for credit cards and personal loans may lead to increased interest rates, as banks need to allocate more capital. This can make it challenging for individuals to obtain credit, with those eligible facing stricter terms.
“If banks raise rates due to higher risk weightage, existing borrowers experience higher monthly payments and increased overall borrowing costs. Online lending apps, operating in a competitive environment, may respond by raising interest rates to maintain profitability. Borrowers should stay informed about any changes and regularly review their financial situation for informed decisions,” Shukla added.
Forex reserves decline $462 mn to $590.321 bn
NEW DELHI: India’s forex kitty dropped by $462 million to $590.321 billion for the week ended November 10, the Reserve Bank said on Friday.In the previous reporting week, the overall reserves had rose by $4.672 billion to $590.783 billion. In October 2021, forex kitty had reached an all-time high of $645 billion. Reserves took a hit as the RBI deployed the kitty to defend the rupee amid pressures caused majorly by global developments since last year. ENS