RBI cuts risk weight on consumer credit to 100%

In a move that will help lower loan pricing in the unsecured consumer credit space, the Reserve Bank Wednesday reduced the risk weight for all consumer loans, barring credit cards, to 100 per cent from the prevailing 125 per cent.

Under the standardised approach for credit risk management, all unsecured consumer credit, including personal loans and credit card receivables, which are both unsecured lending, attract a higher risk weight of 125 per cent or higher, if warranted by an external rating of the counterparty.

"On a review, it has been decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100 per cent," RBI said in the third bi-monthly monetary policy review, which governor Shaktikanta Das said is a move aimed harmonisation.

"The 125 per cent risk weight is much higher than what Basel requires us to maintain. It was fixed at a time when credit growth in this segment was excessively high," deputy governor NS Vishwanathan said.

The central bank said guidelines in this regard would be issued by the end of August.