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    Question

    The Reserve Bank of India has tightened some norms and raised the risk weights for personal loans and credit cards. Based on the above information,which of the following statements is/are correct ?

    I. The Reserve Bank of India (RBI) has increased the risk weighting for unsecured loans like personal loans and those on the credit card  from 100 per cent to 125 per cent.  

    II.  The risk weighting for consumer credit exposure of NBFCs, which are essentially retail loans, increased to 125 per cent from 100 per cent that incudes housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/self-help group loans.

    III.The risk weighting on credit card receivables for banks has been increased from 125 per cent to 150 per cent.

    A Only I Correct Answer Incorrect Answer
    B Only I & III Correct Answer Incorrect Answer
    C Only II & III Correct Answer Incorrect Answer
    D Only III Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The Reserve Bank of India (RBI) has increased the risk weighting for unsecured loans like personal loans and those on the credit card  from 100 per cent to 125 per cent.   The risk weighting for bank loans to higher-rated NBFCs too has been increased by 25 percentage points.   The risk weight for lending to an AAA-rated NBFC is 20 per cent, which will go up to 45 per cent. The risk weight of AA rated NBFC is 30 per cent, which will now become 55 per cent. For A-rated NBFC, risk weight is 50 per cent, which will be 75 per cent now.  Bank credit to NBFC is roughly 10 per cent of the total loans. Of that a proportion would be to AAA-, AA-, & A-rated NBFCs. The increase in risk weights are applicable for all loans, except to housing finance companies, and loans to NBFCs which are eligible for classification.    Similarly, the risk weighting for consumer credit exposure of NBFCs, which are essentially retail loans, increased to 125 per cent from 100 per cent except housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/self-help group loans.  The risk weighting on credit card receivables of banks and NBFCs has also been increased. For banks, it has been increased from 125 per cent to 150 per cent and for NBFCs 100 per cent to 125 per cent.The norms on board-approved limits should be implemented by February 29, 2024.

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