The Reserve Bank of India (RBI) has strengthened regulations for personal loans and credit cards by increasing the amount of capital that is required.
The new guidelines may slow the expansion of credit cards and personal loans and increase their costs.
According to a statement from the RBI, the central bank increased the capital requirements that banks must keep aside for each loan by 25 percentage points, to 125 per cent for retail loans, for lenders and non-bank financial firms (NBFCs).
According to the RBI, the new risk weight will be applied to retail loans for NBFCs and personal loans for banks.
The RBI further stated that loans secured by gold and gold jewellery, as well as those related to housing, education, and cars, would not be accepted.
The RBI increased the risk weights for banks and NBFCs based on credit card exposures by 25 percentage points, to 150 per cent and 125 per cent, respectively.
Governor of the RBI Shaktikanta Das had stated last month that the central bank was keeping a careful eye out for any signs of stress in a few rapidly expanding personal loan categories.
Additionally, the RBI has instructed banks to reserve more capital for loans to non-bank financial companies (NBFCs), where the risk weight is currently less than 100 per cent.
It further stated that lenders have to implement board-approved guidelines for exposure to various consumer credit categories.
The RBI's November 2023 bulletin states that credit card growth in October was sustained by cash backs, reward points, contactless cards, and credit cards linked to UPI.
As of September 22, 2023, unsecured personal loans increased 23 per cent from the previous year, while credit card balances increased by about 30 per cent, per RBI data.