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Mumbai, The Reserve Bank on Thursday tightened norms for unsecured personal loans for banks and non-banking financial companies. The revised norms wherein risk weights have been increased by 25 percentage points will not be applicable on certain consumer loans, including housing, education, and vehicle loans. Besides, the norms will not be applicable on loans secured by gold and gold jewellery. These loans will continue to attract 100 per cent risk weight. Higher risk weight implies that banks have to keep aside more money as buffer when it comes to unsecured personal loans. In simple words, a higher risk weight restricts banks' lending capacity. Recently, RBI Governor Shaktikanta Das had flagged the high growth in certain components of consumer credit and advised banks and Non-Banking Financial Companies (NBFCs) to strengthen their internal surveillance mechanisms, address the build-up of risks and institute suitable safeguards, in their own interest. The high growth seen in consumer credit and increasing dependency of NBFCs on bank borrowings were also highlighted by the governor during the interactions with MD/CEOs of major banks and large NBFCs in July and August, respectively. "On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, by 25 percentage points to 125 per cent," the RBI said in a circular. The central bank has also increased the risk weights on credit receivables by 25 percentage points to 150 per cent and 125 per cent for banks and NBFCs, respectively.

RBI tightens norms on personal loans for banks, NBFCs

The <keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>'s decision to tighten norms for unsecured <keyword id="35520" type="General" weightage="20" keywordseo="personal-loans" source="Orion">personal loans</keyword> is credit positive because lenders will need to allocate higher capital for such loans, thus improving their loss-absorbing buffers, <keyword id="6462970" type="General" weightage="20" keywordseo="moodys" source="Orion">Moody's</keyword> Investors Service said on Monday. The Reserve Bank last week raised risk weights on unsecured retail loans, credit cards and lending to non-banking finance companies (NBFCs) by 25 percentage points. Moody's said <keyword id="586043" type="General" weightage="20" keywordseo="unsecured-loans" source="Orion">unsecured loans</keyword> have been growing rapidly in the past few years, exposing financial institutions to a potential spike in credit costs in case of sudden economic or interest rate shocks. "The tightening of underwriting norms through higher risk-weighted assets is credit positive because lenders will need to allocate higher capitals for such loans improving their loss-absorbing buffers and may dampen their growth appetite," Moody's said in a statement. It said that over the past few years, India's unsecured lending segment has become very competitive, with banks, NBFCs and financial technology (fintech) companies, including several new entrants, aggressively growing loans in this category. In the past two years, personal loans grew around 24 per cent and credit card loans rose 28 per cent on an average compared with the overall banking sector's credit growth of around 15 per cent, Moody's said. "We expect banks would be able to absorb higher risk weights on their capital because the overall banking sector's exposure to unsecured retail credit is small at around 10 per cent of loans as of September 2023 and the sector's overall capitalization is at historically high levels with a Common Equity Tier 1 ratio of 13.9 per cent as of March 2023," Moody's said. However, the impact of the new underwriting rules could vary among individual lenders depending on their exposure to unsecured loans, it added. Last week, US-based S&amp;P Global Ratings had said that the RBI's decision to tighten norms for unsecured consumer credit is likely to hit banks' capital adequacy by 60 basis points. The move could lead to higher lending rates, lower credit growth and increase the need for capital raising among weak lenders, it added.

Higher risk weight on unsecured bank loans credit positive: Moody's

<ul><li>On 27 September, India’s central bank eased a liquidity coverage requirement imposed on banks and said it would provide all necessary funding support to the banking sector. </li><li>The <keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword> has raised the facility to avail funds for liquidity coverage ratio (LCR), which measures the amount of liquid assets held by banks against short-term <keyword id="44647" type="ORGANIZATION" weightage="20" keywordseo="debt">debt</keyword>, from 11% to 13%. </li><li>This will allow banks to increase the weightage given to government securities when calculating their <keyword id="6493444" type="DEFINITION" weightage="20" keywordseo="Statutory-Liquidity-Ratio">statutory liquidity ratio</keyword> and free up deposits for their short-term funding needs. </li></ul>Following <a href="https://www.businessinsider.in/indias-main-financial-regulators-and-its-largest-bank-are-trying-to-calm-investors-amid-fears-of-a-liquidity-crisis/articleshow/65929921.cms">a promise </a>to investors that it would step in to prevent a liquidity crisis amongst Indian lenders as well as a subsequent <a href="https://in.reuters.com/article/india-shadowlenders/finance-ministry-urges-rbi-to-take-steps-to-ease-liquidity-tackle-credit-crunch-idINKCN1M609Y">push</a> from India’s finance ministry, the Reserve Bank of India (RBI) looks like its making good on its word, albeit at the cost of its mandate to manage risk. On 27 September, India’s central bank eased a requirement imposed on banks related to liquidity coverage and said it would provide all necessary funding support to the banking sector. The RBI raised the facility to avail funds for liquidity coverage ratio (LCR), which measures the amount of liquid assets held by banks against short-term debt, from 11% to 13%. This will allow banks to increase the weightage given to government securities, which is a liquid asset, when calculating their statutory liquidity ratio, which measures the amount of deposits invested in liquid assets. Hence, this will free up banks’ deposits so they can meet their funding needs in the short-term. And their funding needs are dire. Earlier this week, the liquidity deficit was estimated to be ₹1.4 trillion. However, In doing so, the RBI is effectively trading short-term benefits for longer-term pain. The current liquidity crisis stems from the aversion of institutional investors to buy the debt instruments of non-banking financial companies like IL&amp;FS, which is on the brink of default. By relaxing liquidity coverage requirements for banks, the RBI is allowing banks greater freedom in how they use their deposits and also letting them take on riskier short-term debt so a lot more money will enter the system, which will have an inflationary effect. In essence, domestic lenders are being allowed to use a greater percentage of their deposit-holders’ money to pay down their short-term debt obligations and extend credit to borrowers. In the event of a market downturn or a loss of faith in these banks, they could face a run on their deposits, which will be fatal given their lower risk buffer. The finance ministry has insisted that the RBI also relax reserve requirements for banks, under which banks set aside a certain portion of funds with the central bank. Earlier this week, the RBI took a page out of the European Central Bank’s playbook on <a href="https://www.ecb.europa.eu/explainers/show-me/html/app_infographic.en.html">“quantitative easing”</a> and said it would buy around <a href="https://www.thehindubusinessline.com/money-and-banking/rbi-to-conduct-omo-to-infuse-liquidity/article25029705.ece">₹100 billion</a> worth of <keyword id="6370709" type="UNKNOWN" weightage="20" keywordseo="Government-bonds">government bonds</keyword> from the open market to inject funds into the economy.

The Reserve Bank of India is trying to prevent a liquidity crisis at banks by relaxing an important risk requirement

<ul><li>Employees over 50 or GenXers feel less stress and can concentrate on work better than those under 40, says a recent study.</li><li>They are also much more likely to stretch themselves, work harder and handle crises better.</li><li>But sadly they face an age-bias when it comes to hiring and promotions, say HR experts. </li></ul>They’re neither millennials nor Boomers. In fact, the generation that’s now over 50 is so ignored that their name is barely heard. They’re called GenXers, born between 1965-1980 right before millennials started populating the earth. The generation that started work right at the start of the millennium did not have the kickstart that millennials did, but also gained extensively from the high-capex environment between 2004-2010. Most of them have seen better salary bumps than GenZers or millennials. Strained but not distressed Unlike their younger peers, GenXers feel less stress and can concentrate on work better than those under 40, as per 2023 Asia Mental Health Index by Aon and TELUS Health. “Employees under 40 years of age are nearly 50% more likely than employees older than 50 to feel mentally and/or physically exhausted at the end of their workday,” the report said indicating that the younger workers are tired as compared to the others. As per the AON report, the mental health of those over 50 can be described as ‘strained’ while that of those under 40 in Asia can be described as ‘distressed’. It also establishes a direct correlation between mental health and productivity. GenZs, on the other hand, feel the most stress. “The study shows that employees under 40 are particularly feeling the strain of poor mental health, whilst those between 20 to 29 years old are significantly worse off, with a Mental Health Index score of 57.8, representing the most strain and the highest mental health risk of any age group by a significant margin,” the AON report. <keyword id="28484" type="General" weightage="20" keywordseo="genx" source="Orion">GenX</keyword> versus GenZ GenXers also have a work ethic that’s polar opposite to GenZs, and not merely because of the generational-effect. “Those who are now in their 50s started work in the late 1990s, the liberalization period. Their work ethos are different in the sense they can stretch a little bit more, work late hours and have more capacity to do work,” Varda Pendse, strategic HR consultant and coach told Business Insider. Neeraj Balani, MD of International SOS, a risk management company too agrees that there are noticeable differences in work ethic between GenXers, millennials, and GenZs. “A GenX employee may prioritize flexible work hours to spend time with their family and may not feel the need for constant feedback from their superiors whereas a GenZ employee might prefer working remotely and can comfortably use multiple apps and platforms for project management and communication and may prefer concise, direct feedback through text or email,” adds Balani. The crisis managers When technology is critical to a process, GenZ who are digital natives are more comfortable and bring a tad more digital savviness into the team. “Generation X brings adaptability and a focus on work-life balance. Generation Z, as digital natives, excels in leveraging technology for efficiency and is passionate about diversity and inclusivity, shaping a more digitally savvy and equitable workplace,” says Balani. So their preference is higher in tech, services, consulting and hospitality. But when it comes to banking and other financial sectors, those over 50s are given equal weightage when it comes to hiring. GenXers are much calmer during a crisis. Pendse believes that they are much more likely to pursue and persevere more while the younger generation also tends to burnout faster and struggle more. “If you see, GenXers also bring in a certain amount of passive aggressiveness into their working style which younger people do not,” she adds enumerating the differences between the two generations of workers. GenXers are also in a state and stage in life that allows them to have a calmer outlook on everything including work. One of them being better financial stability. “Employees without emergency savings are 60% more likely to have difficulty concentrating at work vs employees with emergency savings,” the AON report says. GenXers and an age-bias Yet, there is a visible age-bias when it comes to those over 50, especially when it comes to fresh hiring by companies. “There is diffidence in hiring an older person. A younger employee is also much more likely to be promoted than an older person,” Pendse says. However, experts believe that might be the wrong approach. “I believe recognizing and valuing older employees is not only a matter of fairness but also a strategic move for organizations. Their experience and institutional knowledge can be instrumental in problem-solving, mentoring younger employees, and contributing to the overall success of the company,” Balani tells Business Insider India. The right mix of an ideal workplace, experts say, is a good measure of each of these opposite generations — weighed in with millennials. Millennials who have seen nondigital and a digital era have been quick adapters, and also have the advantage of mentoring GenZs while receiving mentoring support from GenXers. SEE ALSO <a href="https://www.businessinsider.in/finance/news/bonds-will-weigh-on-gold-this-quarter-diversify-gold-holdings-say-experts/articleshow/104496677.cms">Bonds will weigh on gold this quarter, diversify gold holdings say experts</a> <a href="https://www.businessinsider.in/business/news/wipro-ceo-expects-revenues-to-rebound-in-the-next-few-quarters/articleshow/104541778.cms">Wipro CEO expects revenues to rebound in the next few quarters</a>

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RBI tightens norms on personal loans for banks, NBFCs

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Higher risk weight on unsecured bank loans credit positive: Moody's

PTI

The Reserve Bank of India is trying to prevent a liquidity crisis at banks by relaxing an important risk requirement

Dilsher Dhillon

Can you guess which generation works the hardest? It is the GenXers who stretch themselves at work not millennials

Katya Naidu

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