Financial Stocks Decline As RBI Raises Risk-Weight On Consumer Loans

The Reserve Bank of India said the consumer credit exposure for banks and NBFCs, excluding housing, education, vehicle, and gold-backed loans, will attract a risk-weight of 125 percent from 100 percent earlier.

Banks and non-banking financial services stocks were under pressure in the morning session on November 17 after the RBI raised the risk-weight on consumer loans.

The Reserve Bank of India (RBI) tightened norms for personal loans and credit cards to check the unbridled growth in this segment.

The central bank has raised credit risk weights on unsecured consumer loans by increasing the capital requirements for such loans as concerns have been growing over these borrowings.

The Reserve Bank of India said the consumer credit exposure for banks and NBFCs, excluding housing, education, vehicle, and gold-backed loans, will attract a risk-weight of 125 percent from 100 percent earlier.

A higher risk implies the bank will have to set aside a higher amount as loan provisioning, which will impact capital ratios of lenders and compel them to increase interest rates on such products to curb impact on return of equity (RoE).

The risk-weight for credit card loans by banks was raised to 150 percent from 125 percent. Those by NBFCs will see a risk-weight of 125 percent, up from 100 percent.

Nifty Financial Services shed 0.5 percent at 09:30 AM dragged by SBI Cards which tumbled over 5 percent followed by Cholamandalam Finance, State Bank of India, Shriram Finance, Axis Bank, Bajaj Finance and Bajaj Finserv which shed 1-3 percent each.

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