1. What prompted the RBI’s recent action on unsecured loans?
The RBI increased the risk weight for consumer and credit card loans to slow the rapid growth of unsecured credit and address unscrupulous recovery methods.
2. How does increasing the risk weight impact lenders and borrowers?
Lenders must reserve more capital for these loans, raising their costs, which they may pass to borrowers through higher interest rates, ultimately discouraging unsecured loans.
3. What are unsecured loans?
Unsecured loans don’t require collateral. They include consumer durables, personal loans for various purposes, and credit card usage.
4. Why are these loans a concern for financial stability?
Their rapid growth raises concerns about financial stability and the aggressive recovery practices by loan agents.
5. What did the RBI say about loan recovery practices?
The RBI reminded regulated entities to ensure their agents don’t engage in harassment or intimidation during debt collection.
6. What actions has the RBI taken against errant lenders?
The RBI has imposed fines and restrictions on several banks and NBFCs for rule violations in lending and loan recovery practices.
7. What is the impact of the RBI’s measures on financial risks?
The measures aim to mitigate risks associated with high unsecured loan growth and prevent a recurrence of non-performing asset (NPA) issues.
SRIRAM’s Insight: The RBI’s stringent measures reflect its commitment to maintaining financial stability and protecting consumers from predatory lending and recovery practices. These actions are crucial in ensuring a balanced and responsible credit environment in India.
