In a pre-emptive move, the Reserve Bank of India (RBI) last week increased risk weighting in consumer credit for both banks and non-banking financial companies (NBFCs) from 100 per cent to 125 per cent. This will, however, not include housing loans, education loans, vehicle loans, and gold loans. The banking regulator was clearly worried about the growth in unsecured loans. Risk weighting has also been increased for credit-card receivables. RBI Governor Shaktikanta Das touched upon the issues in his monetary policy statement in October and advised banks and NBFCs to strengthen their internal surveillance.
The Indian economy has witnessed a surge in consumer-credit growth over the past couple of years. Retail loans grew at a compound annual rate of 24.8