The RBI recently increased the risk weights on consumer credit extended by banks and NBFCs by 25 basis points.

Risk weight determines the capital lenders have to set aside while extending a loan. Thus, it makes it costlier for them to extend personal loans.

The risk weight for credit card receivables has also been increased by the RBI, in turn making it costlier for lenders to lend through credit cards.

However, the new norms would not apply to housing loans, educational loans, vehicular loans, and loans secured by gold or gold jewellery.

The new norms would be applicable to both outstanding and new loans.

As lenders would have to set aside more capital for personal loans from now on, it might lead to higher interest rates on these types of loans.