Regulatory measures towards

consumer credit and bank

credit to NBFCs

December 2023
Strictly Private and Confidential
 Background behind the Notification
1. Governor’s Statement of October 06, 2023, highlighted high growth in certain components of consumer credits and advised banks and
on-Banking Finance Companies to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute
suitable safeguards, in their own interest.

2. The high growth seen in consumer credit and increasing dependency of NBFCs on bank borrowings were also highlighted by Governor
in the interactions with MD/CEOs of major banks and large NBFCs in July and August 2023, respectively - Large growth in FinTech
offering unsecured loans

3. As per RBI Sectoral Deployment data for entire Personal Loan segment stood INR 49,99,349 Crores with variation (Y-o-Y) of 29.7% as
compared to October 2022.
Outstanding as on (in INR Crores) Variation (Year-on-Year) Variation (Financial Year)

Sector 24.Mar,202 21.Oct,2022 / 20.Oct,2023 / 21.Oct,2022 / 20.Oct,2023 /

22.Oct,2021 25.Mar,2022 21.Oct,2022 20.Oct,2023
3 22.Oct,2021 21.Oct,2022 25.Mar,2022 24.Mar,2023

4. Personal Loans 3199948 3455556 3855873 4180838 4999349 20.5 29.7 11.6 19.6
(4551584) (18.0) (8.9)
4.1. Consumer Durables 14581 17840 20624 20983 22205 41.4 7.7 15.6 5.8
4.2. Housing (Including Priority Sector Housing) 1605562 1726697 1873413 1988532 2564666
(2144376)
16.7 36.9
(14.5) 068.5 29.0
(7.8)
4.3. Advances against Fixed Deposits (Including FCNR
(B), NRNR Deposits etc.) 72004 83629 97857 122116 113973 35.9 16.5 17.0 -6.7
4.4. Advances to Individuals against share, bonds, etc. 6235 6907 8273 7634 7872 32.7 -4.9 19.8 3.1
4.5. Credit Card Outstanding 145353 154537 188033 204708 240656 29.4 28.0 21.7 17.6
4.6. Education 81078 82729 91790 96853 110715 13.2 20.6 11.0 14.3
4.7. Vehicle Loans 378026 402564 460871 502377 553154 21.9 20.0 14.5 10.1
4.8. Loans against gold jewellery 73023 74665 85288 89382 100004 16.8 17.3 14.2 11.9
4.9. Other Personal Loans 824085 905987 1029723 1148253 1286104 25.0 24.9 13.7 12.0

PwC | Regulatory measures towards consumer credit and bank credit to NBFCs Source: RBI Press Release December 2023 2
Brief of Notification

Risk weight increased Risk weigh increased from Set board approved
from 100% to 125% for 125% to 150% for credit consumer credit limits for
consumer credit exposure card receivables all sub-segments and
specifically for unsecured.

01 03 05

CC Exposure of
CC Exposure of Credit Card Bank Credit to Strengthening of
Commercial Top-up loans
NBFCs Receivables NBFCs Credit Standards*
Banks

02 04 06
Risk weigh increased from Revision in risk weight on Top-up on unsecured
100% to 125% for Loans to NBFCs by 25% loans secured against
consumer credit exposure over the risk weights depreciating movable
arrived at based on rating assets to be classified as
unsecured loans.

PwC | Regulatory measures towards consumer credit and bank credit to NBFCs
*Point 5 is applicable w.e.f March 01, 2024, rest are applicable from November 16, 2023 December 2023 3
Understanding Risk Weights
1. The basic approach of capital adequacy framework for NBFCs is that there exists sufficient capital to provide a stable
resource to absorb any losses arising from the risks in its business.

2. Capital is divided into tiers according to the characteristics/qualities of each qualifying instrument. For supervisory
purposes capital is split into two categories:
▪ Tier I - share capital and disclosed reserves ( Considered as highest quality Capital)
▪ Tier II- Certain reserves and certain types of subordinated debt.

1. NBFCs shall maintain a minimum capital ratio consisting of Tier 1 and Tier 2 capital which shall not be less than 15
percent of its aggregate risk weighted assets on balance sheet and of risk adjusted value of off-balance sheet items.

2. Tier 1 capital in respect of NBFC (except NBFC-MFI and NBFC primarily engaged in lending against gold jewellery),
at any point of time, shall not be less than 10 percent.

3. Regulations require that higher risk weightage be given to riskier exposure and vice versa.
06

PwC | Regulatory measures towards consumer credit and bank credit to NBFCs December 2023 4
What is Consumer Credit?
The concept of consumer credit is defined in RBI XBRL Returns – Harmonization of Banking Statistics

Included Excluded
1. Loan for consumer durables, 1. Education loans,
2. Credit card receivables, 2. Loans given for creation/ enhancement of immovable
3. Auto loans (other than loans for commercial use), assets (e.g., housing, etc.),
4. Personal loans secured by gold, gold jewellery, immovable 3. Loans given for investment in financial assets (shares,
property, fixed deposits [including FCNR(B)], shares and debentures, etc.), and
bonds, etc., (other than for business / commercial 4. Consumption loans given to farmers under KCC.
purposes),
5. Personal loans to professionals (excluding loans for
business purposes), and
6. Loans given for other consumptions purposes (e.g., social
ceremonies, etc.)

RBI - Regulatory measures towards consumer credit and bank credit to NBFCs are applicable to all consumer loans except of the
following:

1. Housing loans
2. Educational loans
3. Vehicle loans
4. Loans secured by gold and gold jewelry (in case of NBFCs, it will only be loan against gold jewelry)
5. Microfinance/SHG loans (only in case of NBFCs)
PwC | Regulatory measures towards consumer credit and bank credit to NBFCs December 2023 5
Understanding Risk Weights for Loans to NBFCs
“In terms of extant norms, exposures of SCBs to NBFCs, excluding core investment companies, are risk weighted as per the ratings
assigned by accredited external credit assessment institutions (ECAI). Now it has been decided to increase the risk weights on such
exposures of SCBs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where
the extant risk weight as per external rating of NBFCs is below 100%. For this purpose, loans to HFCs, and loans to NBFCs which are
eligible for classification as priority sector in terms of the extant instructions shall be excluded.”

Long term Claims on Corporates and NBFCs excluding CICs – Risk Weights

Rates for
Existing Risk Revised Risk
Ratings Corporates (Non-
Weights (%) Weights (%)
NBFCs) (%)
AAA 20 45 20

AA 30 55 30

A 50 75 50

BBB 100 100 (No change) 100 06

BB & Below 150 150 (No Change) 150

Unrated 100 100 (No change) 100

PwC | Regulatory measures towards consumer credit and bank credit to NBFCs December 2023 6
Challenges pursuant to the Notification

1. Difficulty in raising loans and increase cost of borrowing for NBFCs.

2. Higher cost of borrowing will eventually trickle down to consumer level - Making NBFCs
uncompetitive vis-à-vis banks
3. Entities at the edge of minimum capital requirement need to re assess capital requirements.
4. Capping of internal limits/ Monitoring priority sector lending etc. for consumer credit sub -
segments and unsecured loans, RMC reviews will increase administrative burden on NBFCs
5. Change in Business Model for Fintech based NBFCs which specialize in unsecured loans .

PwC | Regulatory measures towards consumer credit and bank credit to NBFCs December 2023 7
Thank you

Data classification: DC2 (Confidential)

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