RBI's Risk Weight Tweaks: Impact on India's Loan Market

Strategic Insights -

The Reserve Bank of India (RBI) increased risk weights on various loan categories in 2023, aiming to control excessive lending in riskier segments. This move has significant implications for banks and non-banking financial companies (NBFCs), as they must now maintain elevated capital reserves for these categories. The increased risk weights have already affected the loan market, with personal loans and credit card spending growing at 22 percent and 28 percent, respectively, in 2023.

Key Takeaways:

  • The RBI's risk weight tweak on personal loans has increased their cost and accessibility challenges, with a 22 percent YoY growth in 2023, driven by global and local demand, along with innovative products facilitating access to small-ticket loans.
  • The average personal loan ticket size has been declining since 2019, with a recent trend of decline in 2023, according to BankBazaar's Moneymood 2024 report.
  • The RBI's decision to apply the brakes on unsecured and small-ticket loans has been seen as a proactive measure to manage excess growth in this category before asset quality worsens.
  • Well-capitalised lenders are poised for success in 2024, while lenders facing stress may struggle, according to Adhil Shetty, Chief Executive Officer (CEO), BankBazaar.com.
  • The top four categories of loans, including personal, house, credit card, and auto loans, account for 92 percent of the debt, with home loan growth slower compared to last year.
  • The average home loan ticket size in 2023 was Rs 28.19 lakh, with metros experiencing an average ticket size of Rs 33.10 lakh and non-metros at Rs 22.81 lakh.
  • Credit card spending surged to record levels, hitting Rs 1.79 lakh crore in October 2023, with credit cards outstanding crossing 94.7 million.
  • The RBI's regulation updates are expected to have an impact on the unsecured loan landscape in 2024, with lenders adapting to the new rules.

Statistics:

  • 22 percent: YoY growth in personal loans in 2023
  • 28 percent: YoY growth in credit card spending in 2023
  • Rs 1.79 lakh crore: Record credit card spends in October 2023
  • Rs 5,577: Average spend per card in the Diwali month, an increase of 10.4 percent YoY
  • Rs 28.19 lakh: Average home loan ticket size disbursed on Bankbazaar in 2023
  • Rs 33.10 lakh: Average home loan ticket size in metros in 2023
  • Rs 22.81 lakh: Average home loan ticket size in non-metros in 2023
  • 94.7 million: Number of credit cards outstanding in October 2023
  • 92 percent: Debt accounted for by the top four categories of loans (personal, house, credit card, and auto loans)

Sources:

  • Reserve Bank of India (RBI) sectoral credit growth data Report
  • BankBazaar's Moneymood 2024 report
  • BankBazaar Aspiration Index
  • Adhil Shetty, Chief Executive Officer (CEO), BankBazaar.com
  • Global Data Point
  • SyndiGate Media Inc.