Risk Weights

Reserve Bank of India (RBI) has increased the risk weight of commercial banks and non-banking financial companies’ (NBFC) unsecured loans from 100% to 125% as a preventive measure against possible NPAs.

Risk Weights – It is the risk associated with every rupee lent by the bank on its capital position.
Risk Asset Ratio System – It was introduced by RBI in 1992 for banks including foreign banks as a capital adequacy measure in line with the Capital Adequacy Norms prescribed by Basel Committee

Capital Adequacy Ratio, known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the proportion of a bank’s capital to its current and risk-weighted liabilities.

Calculation – It depends on the nature of the loan and the inherent risk associated with it.
Role in loan pricing - Lower the risk, lower the rate of interest on the loans provided.
- For instance, home loans have the lowest interest rate among retail products while personal loans and credit cards have the highest interest rate based on their risk profile.
In case of higher risk weights, the lenders must set aside more capital when making loans, thereby lowering their growth potential.
Impact of RBI’s move – The increase in risk weights by the RBI will elevate funding costs for NBFCs and impact capital requirements.
The immediate impact will likely affect lending partners like Paytm.
In the long run, the overall financial system is expected to become more cautious in disbursing unsecured loans thus preventing over-leveraging.

Unsecured loan is a loan provided without any collateral which include credit cards, consumer durable loans and personal loans.

Source:

Join Our Telegram

Langlands Program

Emerging Technologies in Defence

Formation Day

03 Dec, 25
SHARE

On 1st November, eight Indian states—Andhra Pradesh, Chhattisgarh, Haryana, Karnataka, Kerala, Madhya Pradesh, Punjab, and Tamil Nadu—along with five Union Territories—Andaman and Nicobar Islands, Chandigarh, Delhi, Lakshadweep, and Puducherry—celebrate their Formation Day. This date marks an important milestone in India

Turtle (Kachhua) Wildlife Sanctuary

02 Dec, 25
SHARE

The Turtle Wildlife Sanctuary, also known as the Kachhua Sanctuary, is located in the Varanasi district of Uttar Pradesh. It is recognised as India’s first freshwater turtle wildlife sanctuary, established to conserve endangered turtle species and support the ecological health of the Ganga River. Location and Extent The sanctuary co

Introduction of AI and Computational Thinking (CT) in

02 Dec, 25
SHARE

The Ministry of Education plans to introduce Artificial Intelligence (AI) and Computational Thinking (CT) from Class 3 onwards in the 2026–27 academic year. This initiative is part of the National Curriculum Framework for School Education (NCF-SE) 2023 and aligns with the National Education Policy (NEP) 2020. The aim is to prepare student

Sal Tree

02 Dec, 25
SHARE

Scientists from the Environment Department of Himachal Pradesh University (HPU) in Shimla have recently revealed that the Sal tree (Shorea robusta) is the most effective natural air purifier for combating rising pollution levels. Their findings highlight the tree’s superior capacity to trap dust, absorb gases, and cleanse the air compared

US Resumes Nuclear Weapon Testing

02 Dec, 25
SHARE

The President of the United States has ordered the resumption of nuclear weapon testing after a gap of 33 years, the last test being in 1992. This decision marks a significant shift in global nuclear policy and has far-reaching implications for geopolitics, the environment, and international security. Status of Global Nuclear Weapon Testing