Reserve Bank of India, on 17 November, tightened the norms for consumer credit as it asked banks and NBFCs to assign a higher risk weight for unsecured loans by 25 percentage points.

Following this, the economists at the State Bank of India said that the banking system will need excess capital up to Rs 84,000 crore due to the revised unsecured loan risk weights introduced by the RBI.

In the report, the economist also said that the regulator is seeking to achieve the desired objective of growth inflation through liquidity and macroprudential measures as the repo rates have peaked.

In their report, the economists said, “The immediate impact of the enhanced risk weights is the excess capital that banks would require now. As per our calculation, the banking industry needs Rs 84,000 crore of excess capital.”

The RBI made the decision to raise the risk weight in an attempt to send out a strong message of addressing any incipient financial stability risk in the system.

The report also said measures that were introduced by the RBI are in continuity with the tilt towards an expected loss-driven stress recognition system for regulated entities and the regulator’s recent move to subject-15 layer non-banking finance companies to greater regulatory scrutiny.

The report highlighted that the measures taken by the regulator should be read as restoring the status quo ante of 2019 because the RBI had reduced the risk weight on consumer credit to 100% from 125% in September that year.