RBI exempts bank microfinance loans from high risk weight requirement

The Reserve Bank of India (RBI) has announced that microfinance loans in the nature of consumer credit shall also be excluded from the applicability of higher risk weights of 125% and would be subject to a risk weight of 100%.

The decision shall be applicable from the date of issue of this circular in respect of outstanding as well as new microfinance loans.

In November 2023, the RBI had raised risk weights on consumer credit, including personal loans and bank credit to non-banking financial services, to 125% from 100%. This hike in risk weights had excluded housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery.