Personal loans likely to become cheaper as RBI cuts risk weightage

Reserve Bank of India (RBI) will reduce the risk weight for personal loans to 100% from 125% allowing banks to reduce their loan rates on these loans. Banks have to keep aside a higher amount of money depending on the risk perception on loans guided by the central bank.

"Under the standardised approach for Credit Risk Management, consumer credit, including personal loans and credit card receivables attract a higher risk weight of 125 per cent or higher, if warranted by the external rating of the counterparty. On a review, it has been decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100%," RBI said.

Guidelines in this regard would be issued by the end of August 2019, RBI said.