To ease liquidity and boost demand, the Reserve Bank of India on Thursday notified the reduction in risk weightage for consumer credit, excluding credit card receivables.
The risk weight for consumer credit, including personal loans, but excluding credit card receivables was reduced from 125 percent to 100 percent.
The consumer credit, including personal loans and credit card receivables excluding educational loans, attracted a higher risk weight of 125 percent or more.
Effectively, the move will free up capital from the banking sector which would have been set aside while extending such loans.
Last month, the RBI in "Developmental and Regulatory Policies" changes had announced: "Under the standardised approach for 'Credit Risk Management', consumer credit, including personal loans and credit card receivables attract a higher risk weight of 125 percent or higher, if warranted by the external rating of the counterparty."
"On a review, it has been decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100 percent."