RBI's revised risk weight norms to impact capital adequacy by 4%, says SBI Card

SBI Card said it is a AAA-rated company and has enough sources and a diversified lender base, to manage the impact.

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The Reserve Bank of India's (RBI) decision to increase risk weight for consumer credit is likely to reduce the capital adequacy of the company by around 4 percent, SBI Card said in a statement on November 17.

On November 16, the RBI increased the risk weight on the consumer credit exposure of commercial banks and NBFCs by 25 percentage points.

"This will impact the capital adequacy ratios for Banks and NBFCs – for SBI Card this impact will reduce capital adequacy by around 4 percent, "SBI Card said in its statement.

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SBI Card in its statement further added that this is a positive move by RBI to ensure prudent growth in unsecured lending.

"As of now, we are well capitalized and well above the regulatory guideline of 15 percent. If required, we will augment tier 2 capital. There is no need for us to raise equity. We are a profitable company, and our profits are sufficient to fund growth. The increase in risk weight on NBFC lending by banks may lead to an increase in the cost of borrowings for the industry," said SBI Card.

The central bank increased the risk weight on the consumer credit exposure of commercial banks and NBFCs by 25 percentage points. The risk weight of consumer credit of commercial banks and NBFCs has been revised to 125 percent from 100 percent. This means banks and NBFCs must set aside more capital while extending such loans.

SBI Card further added that it is a AAA-rated company and has enough sources and a diversified lender base, to manage the impact.

"We do not foresee a significant impact on our cost of funds during this financial year. It may increase marginally in absolute terms on an annualized basis, "the statement added.

Consumer credit of banks – outstanding as well as new – includes personal loans. It excludes housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, according to the RBI circular.