SBI expects limited impact of RBI’s stricter rules on personal loans

The State Bank of India (SBI), the nation's leading lender, foresees minimal effects on its capital ratios following the central bank's recent imposition of tighter regulations on personal loans, according to Chairman Dinesh Kumar Khara. In a phone interview with Reuters, Khara stated that the increased risk weight on personal loans, including credit cards, is estimated to have an impact of 55-60 basis points (bps). As of the end of September, SBI's capital adequacy ratio stood at 14.28 per cent. Taking into consideration the unadjusted half-yearly profit, Khara indicated that the capital adequacy ratio would experience a 109 bps increase.

Despite the heightened capital requirement, Khara expressed confidence in the bank's substantial buffers, underlining that there is no immediate need to accelerate fundraising efforts. SBI shares saw a 3.6 per cent decline on Friday following the announcement.

The Reserve Bank of India (RBI) mandated banks to increase capital reserves on Thursday, citing concerns about the rapid expansion of certain personal loans. Governor Shaktikanta Das, in a recent monetary policy review, urged banks to reinforce internal processes to mitigate risks. While the elevated capital requirement is expected to raise the cost of loans and potentially impede growth, SBI remains optimistic about its retail loan portfolio, targeting approximately 15 per cent growth this fiscal year.

Khara highlighted that the tightened capital requirements specifically focus on unsecured personal loans, sparing core sectors such as car loans, home loans, and gold loans. 

He expressed confidence that the central bank is unlikely to enforce stricter capital requirements on these essential segments. However, digital lenders providing short-term consumption loans might experience a slowdown.

SBI Cards and Payment Services, a subsidiary of SBI specialising in credit cards, is expected to encounter a more substantial impact on its capital ratios, estimated at around 400 bps. Despite this, Khara assured that the capital ratio would remain between 17-18 per cent, surpassing the regulatory requirement of 15 per cent. The board of SBI Cards will assess the necessity of additional capital raising in response to these changes, Khara added, as shares of SBI Cards witnessed a decline of over 5 per cent.

(With Reuters inputs)