Personal Loan interest rates surge by 30-50 bps following RBI's raised risk weightage in November 2023

Personal Loan Rates: Over the past few months several private lenders such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank, and Axis Bank had increased interest rates on personal loans (PLs) after the Reserve Bank of India (RBI) had deemed them as riskier in November 2023, said a report by the Economic Times.

Citing data from the disclosures of the banks, the report said that the personal loan rates were increased by 30-50 basis points (bps).

In November last year, the central bank had flagged certain concerns on excessive growth in the unsecured retail loans and increased the risk weightage of personal loans to make lenders more cautious and discourage them from lending too much of these loans.

The RBI had raised the risk weightage of personal loans to 125 per cent from 100 per cent in November 2023. For credit card loans, it was increased from 125 per cent to 150 per cent.

A look at the new personal loan interest rates of the banks –

–ICICI Bank now offers personal loan at 10.80 per cent interest rate compared to 10.50 per cent earlier.

–Kotak Mahindra Bank offers personal loans at interest rates starting from 10.99 per cent, compared to 10.50 per cent at the end of last year.

–HDFC Bank’s personal loans come at an interest rate of 10.75 per cent per annum since April, compared to 10.35 per cent between January and March this year.

–Axis Bank offers personal loan at interest rate of 10.99 per cent as compared with 10.49 per cent at the time of the RBI’s risk announcement.

According to RBI data, the retail loan growth declined to 17.8 per cent in May 2024, compared to 19.1 per cent in May 2023.

The credit growth in unsecured personal loans such as ‘credit card outstanding’ declined from 34.2 per cent in November 2023 to 23 per cent in April 2024.