Changes in Instant Personal Loans and Credit Cards by RBI 2024

Starting from December 2023, a very big update has come from RBI (Reserve bank Of India) which is regarding Instant Personal Loans and Credit Cards. This big update of RBI has shaken the entire banking industry, which is going to make a huge difference in your life. In this article, we will discuss in detail about this RBI’ New Update on Unsecured Loans and along with this we will also understand what difference this update will make in your and our lives?

This article may be a bit complex, so you are requested to read this article carefully to understand the impact of this update. Now RBI is continuously launching new updates for the security and convenience of the people, whether those updates are related to credit score or related to the banking industry. We try to provide you an easy summary of all these RBI updates.

RBI’ New Update on Unsecured Loans (Personal Loans and Credit Cards):

Looking Backwards:

Before understanding this update of RBI, we first have to understand the update launched by RBI 8 months ago which was about retail and unsecured loans. In this update, RBI had asked all the banks and NBFCs not to increase the exposure of their unsecured loans so much. Basically RBI had told all the banks and NBFCs here that they should not give these unsecured loans to anyone so easily, put some restrictions on them. RBI had given soft warnings to all banks and NBFCs regarding this in 2021 and 2022.

But you must have noticed that in the last few years, getting personal loans and credit cards has become much easier and today everyone gets instant personal loan and credit card and this thing also has many negative impacts.

Now even after giving so many soft warnings by RBI, these banks and NBFCs did not listen to them, hence RBI has now launched such a massive update on this which has shaken the entire banking industry. Let us know what announcement has been made by RBI in this new update –

What has RBI declared in this update?

Before simplifying this update, let us first understand Risk Weight, what is it?

Risk Weight:

Risk Weight means that when banks provide loans to someone, they have to keep some capital aside. This is called risk weight. For example, if the bank has given a loan of ₹ 100 to someone, then the bank will have to keep some capital aside, which they cannot use the current capital requirement is 9% to 9.5%. Therefore, if a bank gives you a personal loan of ₹100, they will have to keep ₹9 or ₹9.5 aside as capital which they cannot use.

Now this is done so that if by chance there is any loss or any damage, then there is not much impact on the operations or systems of the banks and more importantly, people’s money remains safe.

In its update on Unsecured Loans, RBI has asked all banks and NBFCs to increase their risk weight or capital by 25%. That is, if the bank gives a loan of ₹ 100 to someone, then instead of 9%, 11.25% (9% + 25% of 9% = 11.25%) will have to be kept in the form of use capital.

Now if more capital is kept aside, banks will have less money left to give loans. Now here it is obvious that banks will have to increase their interest rates to maintain their margins. Now here we can say that indirectly the interest rates of personal loans are going to increase. Now we will also talk about how much these interest rates will increase.

What Impact Will This Update Have On Banks And NBFCs?

Now this can be a small update for banks because people taking personal loans are rarely seen these days. We have also noticed that now people do not take personal loans but they believe in taking instant personal loans from new age fintech companies. Now if you are also one of these people then RBI has given you a big shock.

Now, all the fintech companies from which we take instant loans have a tie-up with one or the other NBFC. So basically this money of yours also comes from some NBFC. Now a lot of changes are going to come in the life of all NBFCs because this update is going to have double impact on NBFCs.

Impact On NBFCs:

All NBFCs borrow 50% to 70% of their money from banks and then lend it to customers like you and me. Now as we have told you that due to this update of RBI on unsecured loans, banks will have to keep more capital aside than before, due to which now loans will become more expensive than before. Now whenever a bank gives a loan to an NBFC, that loan will be more expensive than before. This became the first impact of this update on NBFCs.

The second impact of this update on NBFCs will be that from now on, if any NBFC gives loan to people like us and you, then they will also have to keep more capital in the side than before.

Now, due to both these impacts, taking loan from NBFCs will become more expensive than before and interest rates will be increased and its entire impact will be passed on to people like me and you. Now we will see these changes in credit cards also because credit cards are also a type of unsecured loan.

Now before knowing how much the interest rates of banks and NBFCs will increase after this update, let us know which banks and NBFCs will be most affected after this notification of RBI?

Which banks and NBFCs will be most impacted after this RBI notification?

After this notification of RBI, those banks and NBFCs which provide most unsecured loans will be most affected. Let us first see through a table which banks will be most affected by this update –

Now let’s see which NBFCs will be most affected by this update –

What Impact Will This RBI Update Have On Us In The Future?

According to us, this RBI update will impact us in the future in three ways –

1. Perhaps we will stop getting loans as easily as we used to get them now or earlier. Since banks and NBFCs now have to keep more capital aside while giving loans, it is possible that they may give loans only to those customers whose credit score or CIBIL score is better. Therefore, in such a situation, it is very important to improve your CIBIL score.
2. Second, now getting credit cards will not be as easy as before. The acceptance of credit cards will be slightly less than before. But the good news here is that these credit card changes will be applicable at the end of January 2024. Therefore, if you are reading this article before the end of January 2024 and you are thinking of getting a credit card, then you can apply for SBI Cashback Credit Card or HDFC Bank Credit Card because it may become a little difficult later.
3. Third, it is clear from this update that the interest rates on loans will increase in the coming time. According to us, if you take loans from Instant Loan Apps in future, then their interest rates will increase by 3% to 4% and if you take loan from direct banks, then their interest rates will increase by 1% in future.

Final Words:

Whenever RBI releases a new update, we do some research and deliver that update to you in simplified language and hope that you would have learned something new from this article too. And you must have understood well about this update and its impact. If you find this information helpful then share it with needy people.