A day after barring Bajaj Finance Ltd. from sanctioning and disbursing loans underneath its two lending merchandise ‘eCOM’ and ‘Insta EMI Card’ with instant impact, the Reserve Financial institution of India (RBI), which has been crimson flagging in regards to the rising unsecured mortgage books of sure Regulated Entities (REs), on Thursday issued regulatory measures in direction of shopper credit score and financial institution credit score to Non Banking Monetary Firms (NBFCs.) rising threat weights by a further 25 share factors to 125%.
“Please check with Governor’s Assertion dated October 6, 2023 flagging the excessive progress in sure elements of shopper credit score and advising banks and NBFCs to strengthen their inside surveillance mechanisms, handle the build-up of dangers, if any, and institute appropriate safeguards, in their very own curiosity,” the RBI mentioned in a round.
“The excessive progress seen in shopper credit score and rising dependency of NBFCs on financial institution borrowings have been additionally highlighted by Governor within the interactions with MD/CEOs of main banks and huge NBFCs in July and August 2023, respectively. On this context, it has been determined to impact the next measures,” it added.
Presently, the patron credit score publicity of business banks attracts a threat weight of 100%.
“On a evaluate, it has been determined to extend the chance weights in respect of shopper credit score publicity of business banks (excellent in addition to new), together with private loans, however excluding housing loans, training loans, automobile loans and loans secured by gold and gold jewelry, by 25 share factors to 125%” the RBI mentioned in a round.
Within the case of the patron credit score publicity of NBFCs, mortgage exposures usually entice a threat weight of 100% and on a evaluate, it has been determined that the patron credit score publicity of NBFCs (excellent in addition to new) categorised as retail loans, excluding housing loans, instructional loans, automobile loans, loans towards gold jewelry and microfinance/SHG loans, shall entice a threat weight of 125%, the RBI round mentioned.
As per extant directions, bank card receivables of scheduled industrial banks (SCBs) entice a threat weight of 125% whereas that of NBFCs entice a threat weight of 100%. On a evaluate, it has been determined to extend the chance weights on such exposures by 25 share factors to 150% and 125% for SCBs and NBFCs respectively.
By way of extant norms, exposures of SCBs to NBFCs, excluding core funding firms, are threat weighted as per the rankings assigned by accredited exterior credit score evaluation establishments (ECAI).
On a evaluate, it has been determined to extend the chance weights on such exposures of SCBs by 25 share factors (over and above the chance weight related to the given exterior ranking) in all circumstances the place the extant threat weight as per exterior ranking of NBFCs is under 100%.
For this objective, loans to HFCs, and loans to NBFCs that are eligible for classification as precedence sector by way of the extant directions might be excluded.
For strengthening credit score requirements the REs have been requested to evaluate their extant sectoral publicity limits for shopper credit score and put in place, if not already there, Board authorised limits in respect of varied sub-segments underneath shopper credit score as could also be thought-about obligatory by the Boards as a part of prudent threat administration.
Specifically, limits should be prescribed for all unsecured shopper credit score exposures. The boundaries so fastened needs to be strictly adhered to and monitored on an ongoing foundation by the Threat Administration Committee, the RBI mentioned.
“All top-up loans prolonged by REs towards movable belongings that are inherently depreciating in nature, reminiscent of autos, shall be handled as unsecured loans for credit score appraisal, prudential limits and publicity functions,” the round mentioned.
The above directions, apart from the one for strengthening credit score requirements for board-approved limits has come into power with instant impact.
All REs have been requested to adjust to the provisions of strengthening credit score requirements for board-approved limits on the earliest, however in any case must implement them by no later than February 29, 2024.
Commenting on this Karthik Srinivasan, Senior Vice President & Group Head, Monetary Sector Rankings, ICRA Ltd. mentioned, “The rise in threat weights for shopper loans is consistent with expectations, although a rise in threat weight for lending by banks to non-banks was surprising.“
“These bulletins are anticipated to end in greater capital necessities for the lenders and therefore a rise in lending fee for the debtors. These greater lending charges by banks to non-banks might additionally spill over to company bonds by the use of greater yields and widening of credit score spreads for non-banks,” he added.