What changed
Provisioning on standard assets in personal loans (including credit card receivables), capital market exposures, and commercial real estate loans (excluding residential housing) was raised from 1% to 2%. For loans to systemically important non-deposit taking NBFCs (NBFC-ND-SI), provisioning went from 0.40% to 2%. Risk weight on all exposures to NBFC-ND-SI was increased from 100% to 125%.
What it means for you
Banks must set aside more capital for these high-growth, higher-default segments, directly impacting profitability on these loans. The move signals RBI's concern over asset quality in overheated sectors and aims to curb excessive credit expansion. Higher risk weights also increase capital adequacy requirements for NBFC-ND-SI exposures.
What you must do
- Immediately reclassify standard assets in personal loans, capital market exposures, and real estate loans (excluding housing) to 2% provisioning.
- Reclassify standard loans to NBFC-ND-SI (asset size >= Rs.100 crore) to 2% provisioning.
- Update risk-weight calculations for all NBFC-ND-SI exposures to 125% for capital adequacy.
- Review credit growth in these segments and tighten underwriting standards to manage default risks.
- Ensure Tier II capital treatment for these provisions remains as per existing norms.
Who it affects
All scheduled commercial banks (excluding RRBs), Banks with high exposure to personal loans, credit cards, capital market, and real estate, Banks lending to systemically important NBFCs (NBFC-ND-SI), Risk and compliance teams handling provisioning and capital adequacy
Which loan categories are affected by the provisioning hike to 2%?
Personal loans (including credit card receivables), loans qualifying as capital market exposure, real estate loans (excluding residential housing loans), and loans to systemically important non-deposit taking NBFCs (NBFC-ND-SI) with asset size of Rs.100 crore or more.
What is the new risk weight for NBFC-ND-SI exposures?
The risk weight for all exposures to NBFC-ND-SI has been increased from 100% to 125% with immediate effect.
Are there any categories where provisioning remains unchanged?
Yes, provisioning for direct advances to agriculture and SME sectors remains at 0.25%, residential housing loans beyond Rs.20 lakh at 1.00%, and all other standard assets at 0.40%.