Banks need Rs 84,000 crore excess capital due to RBI tweaks on unsecured loans

The banking sector will require an additional Rs 84,000 crore in capital due to the revised risk weights on unsecured loans introduced by the Reserve Bank of India (RBI), according to economists at the State Bank of India (SBI).

In a report released on Friday, the economists noted that the RBI is employing liquidity and macroprudential measures to achieve growth and inflation objectives, especially as repo rates have reached their peak.

The recent move by the RBI involves a 25 percentage point increase in risk weights on unsecured personal loans, credit cards, and loans to Non-Banking Financial Companies (NBFCs). 

The SBI economists interpret this decision as a proactive measure by the RBI to address potential financial stability risks in the system.

The report also highlights the RBI's continuous efforts to shift towards a stress recognition system driven by expected losses for regulated entities. It notes that the recent regulatory scrutiny on 15 upper layer NBFCs aligns with this trend. 

The economists suggest that the RBI's measures should be viewed as a restoration of the status quo ante of 2019, as the central bank had previously reduced the risk weight on consumer credit (excluding credit card receivables) from 125 per cent to 100 per cent in September of that year.\

(With PTI Inputs)