Finance Desk – In the world of personal banking and loans, there’s been a noticeable shift. The personal loans category includes unsecured loans like credit card debts and consumer loans, is starting to slow down. But what’s the reason behind this?
Actually, the main reason is Reserve Bank of India’s (RBI) decision to increase the risk weight on personal loans last year. The RBI asked banks and financial institutions to set aside more money as a precaution for loans that don’t have any collateral.
Collateral is something of value, like a house or car, that can be taken by the bank if the loan isn’t repaid.
This decision has had a clear impact on how much personal loans are growing. For example, the overall growth of these unsecured personal loans dropped from 27.6% in December 2023 to 23.1% by February.
Loans for buying consumer durables (like appliances and gadgets) grew slower, and even the amount of money people owe on credit cards increased at a slower rate.
The RBI’s move was mainly because they were worried about the fast increase in personal loans. They thought that if this kept up, it might become a problem. The RBI aimed to slow things down to a more manageable pace.
For a person looking to take out a personal loan, this could mean a few things. Banks might become more cautious about giving out loans without collateral. This doesn’t mean you won’t be able to get a loan, but the process might involve more checks or higher interest rates.
Few experts believe this trend of slower growth in personal loans will continue. This cautious approach might help ensure that the growth in personal loans remains sustainable, reducing the risk of financial problems down the line.
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