RBI reduces risk weight for consumer credit, but not of credit card receivables

To ease liquidity and boost demand, the Reserve Bank of India on Thursday notified the reduction in risk weightage for consumer credit, excluding credit card receivables.

The risk weight for consumer credit, including personal loans, but excluding credit card receivables was reduced from 125 per cent to 100 per cent.

The consumer credit, including personal loans and credit card receivables excluding educational loans, attracted a higher risk weight of 125 per cent or more.

Effectively, the move will free up capital from the banking sector which would have been set aside while extending such loans.

Last month, the RBI in "Developmental and Regulatory Policies" changes had announced: "Under the standardised approach for `Credit Risk Management`, consumer credit, including personal loans and credit card receivables attract a higher risk weight of 125 per cent or higher, if warranted by the 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."