Mumbai: In a move aimed at encouraging disciplined credit behaviour and freeing up more capital for banks to lend, the Reserve Bank of India has proposed lowering risk weights on various loan categories and linking them to borrower risk profiles.
Under its revised draft norms, the regulator has proposed capital requirements for credit cards, home loans, corporate loans, real estate exposures, and MSME lending.
Among the key changes are easier norms for credit card users with timely repayment histories and tighter norms for big-ticket home loans.
Credit card users who have repaid their dues in full over the past 12 months - termed 'transactors' - will be classified under the regulatory retail portfolio. This will reduce the applicable risk weight to 75% from 125%, lowering capital requirements for banks and incentivising better quality of acquisition by banks.
Competitive Pricing
For other credit card users, the risk weight will remain at 125%.
The revised norms are among 22 announcements the RBI made during the October monetary policy. They are scheduled to take effect from April 2027.
On home loans, the regulator has proposed to align the risk weight to loan-to-value (LTV) ratios and the number of outstanding home loans.
For up to two housing loans, risk weights will range from 20% — if the LTV is 50% — to 40% — if the LTV is above 80%. A third housing loan will attract higher weights of up to 60%, with an additional 5% surcharge for loans above ₹3 crore.
At present, housing loans attract a uniform 35-50% risk weight, with limited differentiation.
The overall risk weights for personal loans, excluding education, housing, and vehicle loans, will continue to attract a 125% risk weight. The RBI has retained the higher capital requirement for these unsecured exposures, citing their elevated risk profile.
Senior bank officials said the revised framework is expected to improve capital efficiency for banks, especially those with large portfolios of low-risk secured retail loans.
It may also lead to more competitive pricing for home and education loans, while keeping credit conditions tight for unsecured personal loans.
Under the new framework, BBB-rated corporate loans will attract a lower risk weight of 75%, down from the earlier 100%, offering capital relief to banks.
However, unrated corporate exposures exceeding ₹200 crore or those previously rated but now unrated will continue to attract a penal 150% risk weight, unchanged from current norms.
AA-rated corporate loans will attract 20% risk weights, down from 30% now.
For real estate developers, the RBI said commercial real estate-acquisition, development and construction (CRE-ADC) will attract a risk weight of 150%, up from the earlier range of 100-125%, if such projects are having lower sales or low equity contribution from developers.
Residential housing projects under CRE-residential housing will attract a 100% risk weight, compared to 75% now.
Unrated MSME exposures not qualifying under the regulatory retail portfolio will attract a risk weight of 85%, down from 100%. MSMEs meeting retail criteria will continue at 75% risk weight.
Under its revised draft norms, the regulator has proposed capital requirements for credit cards, home loans, corporate loans, real estate exposures, and MSME lending.
Among the key changes are easier norms for credit card users with timely repayment histories and tighter norms for big-ticket home loans.
Credit card users who have repaid their dues in full over the past 12 months - termed 'transactors' - will be classified under the regulatory retail portfolio. This will reduce the applicable risk weight to 75% from 125%, lowering capital requirements for banks and incentivising better quality of acquisition by banks.
Competitive Pricing
For other credit card users, the risk weight will remain at 125%.
The revised norms are among 22 announcements the RBI made during the October monetary policy. They are scheduled to take effect from April 2027.
On home loans, the regulator has proposed to align the risk weight to loan-to-value (LTV) ratios and the number of outstanding home loans.
For up to two housing loans, risk weights will range from 20% — if the LTV is 50% — to 40% — if the LTV is above 80%. A third housing loan will attract higher weights of up to 60%, with an additional 5% surcharge for loans above ₹3 crore.
At present, housing loans attract a uniform 35-50% risk weight, with limited differentiation.
The overall risk weights for personal loans, excluding education, housing, and vehicle loans, will continue to attract a 125% risk weight. The RBI has retained the higher capital requirement for these unsecured exposures, citing their elevated risk profile.
Senior bank officials said the revised framework is expected to improve capital efficiency for banks, especially those with large portfolios of low-risk secured retail loans.
It may also lead to more competitive pricing for home and education loans, while keeping credit conditions tight for unsecured personal loans.
Under the new framework, BBB-rated corporate loans will attract a lower risk weight of 75%, down from the earlier 100%, offering capital relief to banks.
However, unrated corporate exposures exceeding ₹200 crore or those previously rated but now unrated will continue to attract a penal 150% risk weight, unchanged from current norms.
AA-rated corporate loans will attract 20% risk weights, down from 30% now.
For real estate developers, the RBI said commercial real estate-acquisition, development and construction (CRE-ADC) will attract a risk weight of 150%, up from the earlier range of 100-125%, if such projects are having lower sales or low equity contribution from developers.
Residential housing projects under CRE-residential housing will attract a 100% risk weight, compared to 75% now.
Unrated MSME exposures not qualifying under the regulatory retail portfolio will attract a risk weight of 85%, down from 100%. MSMEs meeting retail criteria will continue at 75% risk weight.
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