Some time ago, Reserve Bank of India (RBI) Governor Shaktikanta Das had expressed concern about unsecured personal loans. Now, taking another strict step, the Reserve Bank of India has increased the risk weight on consumer credit of banks. Earlier this figure was 100 percent, which has now been increased by one-fourth to 125 percent.
If we understand in simple language, till now banks were required to maintain capital of Rs 9 for every Rs 100 loan. Now increasing risk weightage means that banks will have to maintain more capital. Now the bank will have to maintain capital maintenance of Rs 11.25 for every Rs 100 loan.
Why Is RBI Making Personal Loan Difficult?
The imposition of strict regulations one after the other regarding loans clearly means that the Reserve Bank of India wants to make personal loans stricter. Now the question is, why does the bank not want people to take personal loans fast? If people take a lot of loan, they will buy many goods from it, due to which money will circulate rapidly in the economy and GDP will increase. Then why is the Reserve Bank itself working to discourage those taking personal loans?
In fact, there is a huge increase in unsecured personal loans and this situation is worrying. This is the reason why in the first week of October itself, RBI Governor Shaktikanta Das had warned banks and NBFCs about giving personal loans. In such a situation, instructions were given that there is a need to be cautious while giving personal loan. The Central Bank was already talking to the banks regarding this. Even on August 25, Shaktikanta Das had held a meeting with banks and NBFCs and expressed concern over this.
After All, How Much Has The Retail Personal Loan Increased?
If we talk about retail personal loan segment, it has about one-third share in the banking system. In the Financial Stability Report released in June, the Reserve Bank had said that from March 2021 to March 2023, retail loans have increased at the rate of about 24.8 percent annually. More growth is being seen in small lending categories, such as credit cards, consumer durable loans and personal loans. Data for March 2021-23 shows that unsecured retail loans increased from 22.9 percent to 25.2 percent. At the same time, secured loans also increased from 74.8 percent to 77.1 percent. By the end of July, the unsecured loan portfolio of banks stood at around Rs 12 lakh crore.
Unsecured Loan Can Cause Two Big Problems
1- Unsecured loan cannot be recovered, NPA will increase!
Unsecured personal loans are those loans which are very difficult to recover. This is because while taking these loans, neither any collateral is given, nor does the bank have any option for recovery of these loans. For example, if you take a loan against FD, mutual fund, gold, property etc., then in case of non-repayment of the loan, the money is compensated from these things. Whereas in case of car loan and home loan, if the loan is not repaid, the money is recovered by selling your asset. At the same time, people take personal loan for such needs which cannot be compensated by the loan, like people take personal loan for buying household items, buying gadgets, buying mobile and even for touring somewhere. In such a situation, the loan cannot be recovered in case of default. In such a situation, banks will suffer losses, which can have a direct impact on the Reserve Bank of India and the country’s economy. This is the reason why from time to time the Reserve Bank keeps issuing some advisory regarding instant loan.
2- Inflation can also increase due to personal loan
If loans are increasing it means purchasing power of people is increasing. People are buying something or the other through these loans from banks. If there is more money in the GDP of a country then the demand also increases. In such a situation, due to limited supply, the prices of goods start increasing. This is the reason why the Reserve Bank of India increases the repo rate from time to time to control inflation, so that the circulation of money in the market can be controlled. Now if there is a huge increase in loans then there will be a possibility of increase in inflation, hence the Reserve Bank is a little worried.
Why are loans increasing?
The Reserve Bank of India has clearly said that unsecured loans are increasing rapidly. Credit card loans, consumer durable loans and small personal loans come in this category. The main reason for this increase is the attractive offers from many companies. If we talk about the ongoing festive season sales, many companies are offering no cost EMI. For this, EMI facility is being provided on credit and debit cards of many banks. Many e-commerce sites themselves are giving some credit lines to their users. These are also increasing unsecured loans. At the same time, many banks also call people every day to give small loans, that too pre-approved loans without any paperwork. Every month a small amount goes out of pocket in EMI, hence many people buy many things on EMI. In this way, they end up shopping more than their purchasing power, due to which the unsecured loan appears to be increasing.
