Be it credit cards or personal loans, a large number of people resort to them to meet their financial needs. The trend of credit card has increased rapidly in the last few years and now many people have started using it in everyday life. The coming days are going to be difficult for them because the Reserve Bank has tightened the rules for retail loan category products including personal loans and credit cards.
Capital requirement of banks has increased
The Reserve Bank on Thursday issued an update regarding the unsecured loan portfolio of banks. In this update, the Reserve Bank said that now banks and NBFCs will need to set aside more capital for their unsecured loan portfolio. The Reserve Bank has now increased this capital requirement by 25 percent to 125 percent.
Changes made in this rule
This means that now banks and non-banking financial companies There will be a need to keep 125 percent capital aside for unsecured loan. Till now 100% capital was required for this. This can be understood with an example. Till now, if any bank or NBFC gave an unsecured loan of Rs 1 lakh, it was required to keep a separate capital of Rs 1 lakh. Now instead of a loan of Rs 1 lakh, Rs 1.25 lakh will have to be kept aside.
There will be no impact on such loans
Loans are generally of two types – secured loan and unsecured loan. Secured loans are those in which some collateral is kept with banks or NBFCs in exchange for the loan. Like gold loan, car loan, home loan, property loan etc. are examples of secured loans. Whereas in case of personal loan or credit card, the bank or NBFC does not have any collateral, hence these are called unsecured loans. RBI has also clarified in its release that the changes made in the provisions will not be applicable to housing, education or vehicle loans.
Why did RBI tighten?
Now the question arises. Why did RBI take such a step when it is good for the economy to distribute more loans or issue more credit cards? So the answer lies in the reports which show that in recent times, unusual growth is being seen in the case of unsecured loans, especially personal loans and credit cards. Last year, overall loan growth was overtaken by personal loans and credit cards by a large margin. Along with this, cases of default have increased in retail loan segments like personal loans and credit cards, and cases of timely payment have decreased.
Due to this, banks will face problems
Due to this step of the Reserve Bank, people may face difficulties in getting personal loans or credit cards in the coming days. The reason for this is that by tightening the provisions, banks and non-banking financial companies will have less capital left to give loans. Let’s understand it like this. Above we told that now if banks or NBFCs give a loan of Rs 1 lakh, they will have to keep aside Rs 1.25 lakh, till now Rs 1 lakh had to be kept aside. Meaning, till now banks required Rs 2 lakh to give a loan of Rs 1 lakh. Now they will need Rs 2.25 lakh to give a loan of Rs 1 lakh. Naturally, they will lack capital and when there is less capital, they will be able to distribute less loans.
Get more latest business news updates