RBI Cuts Risk Weight on Educational Loans

RBI/2007-08/226 DBOD.BP.BC. No.59/21.06.001/2007-08 January 17, 2008 All Scheduled Commercial Banks (excluding  RRBs) Dear Sir, Prudential Norms for Capital Adequacy – Risk Weight for Educational Loans Please refer to our circulars  DBOD.No.BP.BC.90/20.06.001/2006-07 dated April 27, 2007  (paragraph 5.13.3) on ‘Guidelines for Implementation of the New Capital Adequacy Framework’ and  DBOD No.BP.BC.4/21.01.002/2007-08 dated July 2, 2007 , the ‘Master Circular – Prudential Norms on Capital Adequacy’ (Item IA(III)15 of Annex 8 to the circular). 2. In terms of the above stipulations, at present, the ‘Educational Loans’ are classified as a part of ‘Consumer Credit’ for the purpose of capital adequacy, and accordingly attract a risk weight of 125 per cent.  The position has since been reviewed and it has been decided that the ‘educational loans’ be classified as non-consumer credit for the purpose of capital adequacy norms. 3.  Accordingly, the risk weight applicable to educational loans would be as follows : a) Under Basel I framework, the risk weight would be 100 per cent, as against 125 per cent at present. b) Under Basel II framework, the educational loans, now no longer being a part of Consumer Credit, would be treated as a component of the regulatory retail portfolio under paragraph 5.9 of our circular dated April 27, 2007 and attract a risk weight of 75 per cent, as against 125% at present. Yours faithfully, (Prashant Saran) Chief General Manager-in-Charge

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2007-08/226 · issued 17 Jan 2008. The plain-English explanation above is BankPulse’s own independent summary.

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