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JC - Legal Updates - Regulatory measures towards consumer credit and bank credit to NBFCs

Legal Updates

21 Nov 2023

Regulatory measures towards consumer credit and bank credit to NBFCs

Brief Overview:
 
RBI through the ‘Regulatory measures towards consumer credit and bank credit to NBFCs’ dated 16th November 2023 (“Notification”), inter alia hasincreased the risk weight percentage for various credit exposures of commercial banks (“SCBs") and non-banking financial companies (“NBFCs”) to strengthen their internal surveillance mechanisms, address the build-up of risks, and institute suitable safeguards.
 
Technical Details:
 
Increase in risk weight percentage:

Credit Exposure

Erstwhile risk weight percentage

Increased risk weight percentage

Inclusions/Exclusions

Consumer Credit Exposure of SCBs

100%

125%

Excludes personal loans. Excludes housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery.

Consumer Credit Exposure of NBFCs

100%

125%

Excludes housing loans, education loans, vehicle loans, loans secured by gold and gold jewellery and microfinance/Self Help Group (SHG) loans.

Credit card receivables of SCBs

125%

150%

-

Credit card receivables of NBFCs

100%

125%

-

SCB exposure to NBFCs (excluding CICs)

 

100%

125%

Excludes loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector.


Strengthening credit standards:
 
Regulated Entities (“REs”) shall:
 
1)  review their extant sectoral exposure limits.
 
2)  prescribe limits for unsecured consumer credit exposures.
 
3)  adopt necessary board-approved limits for prudent risk management.
 
4)  treat top-up loans extended by REs against movable assets which are inherently depreciating in nature, such as vehicles, as unsecured loans for credit appraisal.
 
JC takeaway:
 
The regulations bought through the Notification might bring correction in the market and address concerns over high growth noticed in the consumer credit segment. This will increase cost of funds and market may see increase in interest rates.
 
For further details, please see:  
 
 
For any queries/clarifications, please feel free to ping us and we will be happy to chat:

●   Mr. Ankit Sinha (ankit.sinha@jclex.com)
●   Ms. Rupul Jhanjee (rupul.jhanjee@jclex.com
)