RBI raised the risk weight on unsecured consumer credit to 125% and credit cards to 150% (banks) — but housing, education, vehicle, gold and secured property loans like LAP are excluded. (RBI/2023-24/85, dated November 16, 2023.) It applies to all commercial banks (incl. sfbs, labs, rrbs). Effective: Immediate (Board-approved sub-limits: by February 29, 2024).
This is the capital-side circular every LAP banker should understand precisely — mostly because of what it leaves out. Worried about overheating in unsecured retail credit, RBI raised the cost of capital on it. Knowing the exclusions lets a LAP head say clearly: our secured book is not caught by this.
For commercial banks, the risk weight on consumer credit — including personal loans — rises 25 percentage points, from 100% to 125%. Crucially, the increase explicitly excludes housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery. For NBFCs, retail consumer credit similarly moves to 125%, excluding housing, education, vehicle, gold and microfinance/SHG loans. Credit card receivables rise to 150% for banks and 125% for NBFCs.
Where does LAP sit? LAP is a loan secured against immovable property, not unsecured consumer credit. It is not in the categories RBI targeted, so a standard LAP exposure does not attract the 125% consumer-credit weight. That said, two cautions matter. First, the circular says top-up loans against inherently depreciating movable assets (like vehicles) must be treated as unsecured for credit appraisal and exposure — a flag for any top-up structuring. Second, every regulated entity must set Board-approved limits for all unsecured consumer-credit sub-segments and monitor them through the Risk Management Committee, implemented no later than 29 February 2024.
Separately, banks' exposures to NBFCs get a 25-percentage-point add-on where the rating-based risk weight is below 100%, excluding loans to HFCs and PSL-eligible NBFC loans. For a LAP business, the net read is reassuring on capital for the core product, with discipline required on top-ups and unsecured adjuncts.
No. LAP is secured by immovable property, not unsecured consumer credit. The hike targets unsecured consumer credit and excludes housing, education, vehicle and gold-secured loans; secured LAP is outside it.
Consumer credit / personal loans to 125% (banks and NBFC retail), and credit card receivables to 150% (banks) / 125% (NBFCs).
Yes. Top-up loans against inherently depreciating movable assets such as vehicles must be treated as unsecured for appraisal, prudential limits and exposure.
Board-approved limits for all unsecured consumer-credit sub-segments must be in place by 29 February 2024; the risk-weight changes were immediate.
Yes — a 25 percentage-point add-on where the rating-based risk weight is below 100%, excluding loans to HFCs and PSL-eligible NBFC loans.