The State Bank of India (SBI) is poised to witness a “moderation” in its unsecured lending portfolio in response to the recent move by the Reserve Bank of India (RBI) mandating higher risk weights. SBI Chairman Dinesh Khara revealed that the impact of elevated risk weights would result in a 0.02-0.03% impact on the bank’s net interest margins in the December quarter. However, he expressed optimism that a more defined scenario would emerge in the subsequent quarter.
Addressing reporters on the sidelines of a FIBAC event, Khara stated, “Whatever we were doing, we will continue to do, but there will be a moderation,” in reference to the RBI’s tightened norms for unsecured lending.
In November, the RBI issued a directive urging lenders to exercise caution and increase risk weights on unsecured lending for both banks and non-banking financial institutions. The central bank’s initiative is aimed at ensuring a more robust cushion for unsecured loans, providing additional buffers in case of financial stress. However, the consequence is likely to be higher costs for personal loans and credit card borrowings, making these forms of credit more expensive for consumers.
Khara acknowledged that the elevated cost of funding would lead to increased interest rates on such loans, emphasizing that this would result in a higher capital cost borne by the bank due to the new RBI norms. Despite these adjustments, he highlighted that the SBI would maintain its robust diligence standards, noting that the gross non-performing assets from the unsecured loans portfolio currently stand at 0.70%.
Earlier in the month, Khara had expressed confidence in the bank’s unsecured loan portfolio, citing its strong performance as a mitigating factor amid changing regulatory dynamics. The RBI’s move is part of ongoing efforts to instill greater resilience in the financial sector and address potential risks associated with unsecured lending. As the SBI anticipates a moderation in this segment, the impact on net interest margins remains a key consideration, with a more comprehensive evaluation expected in the coming quarter.