What are Risk Weighted Assets? | What is Capital Adequacy Ratio? | RBI increases risk weights on Credit Card Loans |
As per recent RBI data, credit card spending in India increased to ₹1.65 lakh Cr in the month of December 2023.
The figure was ₹1.27 lakh Cr in January 2023.
The total number of credit cards in circulation in India as of December 2023, stands at 9.79 Cr.
Of this, the top players in the credit card market as of December 2023 in terms of credits cards circulation are
1) HDFC Bank - 1.95 Cr
2) SBI Card - 1.84 Cr
3) ICICI Bank - 1.64 Cr
4) Axis Bank - 1.35 Cr
In India, Banks have witnessed exponential growth in unsecured loans, which includes personal loans as well as credit cards.
In past 1 year, the growth in unsecured loans has surppased the overall bank credit growth by 15%.
RBI is particularly worried about the same.
Hence, to mitigate the same, RBI has increased the risk weight for credit card loans from 125% earlier to 150%.
What does this mean?
For a bank, the loans sanctioned are shown as assets in the balance sheet.
There is a concept of risk weighted assets in banking. For every loan sanctioned by a bank, there is risk weight assigned to the loan in percentage terms, in accordance with credit risk associated.
Now banks need to maintain minimum amount of capital in order to cover the credit risk that it faces on the loan portfolio or assets.
The ratio of Capital to Risk Weighted Assets is known as Capital Adequacy Ratio (CAR).
CAR shows the ability of any bank to sustain credit events.
Now for any loan given, what amount to capital to maintain, directly depends upon the risk weight assigned to that loan.
By increasing the risk weight on credit card, RBI has increased the amount of capital banks need to maintain on the loans given in form of credit cards.
#rbi #hdfcbank #axisbank #axisbank #creditcard #sbicard
Social Plugin