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The Reserve Bank of India (RBI) has eased the stricter loan rules for small borrowers and non-bank lenders at a time when the economy is showing signs of slowing down.
The RBI has also put on hold its earlier proposals to increase the capital that banks must set aside for new project loans and the liquidity they need to maintain for digital deposits.
The RBI has reduced the risk weight requirement for banks on consumer microfinance loans by 25 percentage points to 100%. Risk weights determine how much capital banks need to keep aside for every loan they issue.
In 2023, the RBI had raised these requirements by 25 percentage points to 125% for retail loans. This was done due to concerns about a rapid rise in small personal loans. However, while some categories, such as housing loans, were excluded from these higher capital requirements at that time, microfinance loans were not.
Now, with the latest decision, the capital requirement for banks on microfinance loans has been brought back to its earlier level. The RBI did not give a specific reason for why it decided to roll back this measure.
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