‘RBI's Reduction of Risk Weights on Consumer Loans is Credit Negative'

Risky business The Reserve Bank of India reducing risk weighting on consumer loans such as personal loans to 100 per cent from 125 per cent will expose banks to risks, said Moody’s Investors Service.

The recent reduction in risk weighting on banks’ consumer loans is credit negative as it will encourage them to increase their exposure to this loan segment at a time when credit risks are increasing from a slowing economy, cautioned Moody’s Investors Service.

On September 12, the RBI reduced risk weighting on consumer loans such as personal loans to 100 percent from 125 percent.

The global credit rating agency said that within rated banks, HDFC Bank has a higher exposure to the personal loans segment and is thus more vulnerable to the potential rise in asset risk as a result of this development.