- It may become difficult to avail personal loans in the future.
- Banks receive warnings from the RBI regarding the risk of loan defaults.
- The usage of credit cards and personal loans has increased after the COVID-19 pandemic.
If you’re considering taking a personal loan or credit during the current times, it can indeed be a bit challenging. The sources suggest that the Reserve Bank of India (RBI) has instructed banks to tighten background checks on customers before issuing unsecured retail loans and credit cards. In unsecured loans, banks do not have any collateral to fall back on if there is a default. This is why their interest rates are generally higher compared to other loans.
The trend of credit cards and personal loans has seen a rapid increase. Both credit cards and personal loans have become popular financial tools for individuals to meet their short-term or immediate financial needs.
Credit cards offer convenience and flexibility in making purchases, both online and offline. They provide a line of credit that can be used for various expenses, and users can repay the borrowed amount over time or in full, depending on their preference. With attractive rewards programs, cashback offers, and discounts, credit cards have become widely used for day-to-day transactions.
Similarly, personal loans have gained popularity due to their quick disbursal and easy accessibility. They can be availed for various purposes, such as funding education, medical expenses, travel, debt consolidation, or any other personal financial requirement. The availability of online platforms and fintech companies has further simplified the personal loan application and approval process.
However, it is important to note that while credit cards and personal loans can provide immediate financial relief, they also come with certain considerations. These include interest rates, repayment terms, associated fees, and the potential impact on credit scores. It is advisable to use credit cards and personal loans responsibly, ensuring timely repayments to avoid accumulating debt and adversely affecting one’s financial well-being.
In order to address the increasing risk of default and the growing vulnerability of insecure portfolios, the Reserve Bank of India (RBI) has been cautioning banks. The RBI can exercise control over both unsecured loans and credit card issuance to mitigate the rising risk. The COVID-19 pandemic has accelerated the usage of credit cards and personal loans.
According to statistics, the number of individuals taking personal loans has increased from 7.8 crore in 2022 to 9.9 crore. Similarly, the number of people borrowing loans through credit cards has risen by 28% to reach INR 1.7 lakh crore, compared to the previous INR 1.3 lakh crore.
These figures highlight the significant surge in the popularity of credit cards and personal loans in recent times. However, it is important for banks and borrowers alike to be cautious and exercise responsible borrowing practices to avoid overburdening individuals with debt and potential financial difficulties in the future.
Personal loans have witnessed a substantial increase, reaching a total of INR 40 lakh crore. This indicates a significant growth in the demand for personal loans as individuals seek financial assistance for various purposes. It is important for borrowers to carefully assess their repayment capacity and utilize personal loans responsibly to avoid excessive debt burden and financial strain in the long run. Lenders should also exercise caution while disbursing loans and ensure proper due diligence to maintain a healthy lending environment.
The trend of unsecured loans continues to rise rapidly in the year 2023. According to the figures released by the Reserve Bank of India (RBI), in February 2023, personal loans have surged from INR 33 lakh crore to INR 40 lakh crore. This represents a significant increase of 20.4%. The RBI is concerned about the rising risk of defaults and the widening gap between interest rates and insecure lending.
The substantial growth in personal loans highlights the increasing reliance on borrowed funds for various financial needs. However, it is crucial for borrowers to exercise caution and prudence while taking on debt to avoid potential financial distress in the future. Lenders, on the other hand, need to maintain diligent risk assessment and management practices to ensure the stability of the lending ecosystem.
This is why the Reserve Bank of India (RBI) has emphasized the need to tighten regulations and make unsecured loans more stringent. The RBI recognizes the possibility of potential defaults and aims to mitigate the risks associated with unsecured loans. Apart from the banks’ efforts, there have been several regulatory changes as well. Sources suggest that the RBI can increase the weightage of risk in unsecured loans.
These measures are intended to address the growing concerns surrounding the lending practices and ensure the stability of the financial system. By imposing stricter regulations and emphasizing risk assessment, the RBI aims to create a more secure environment for lending and minimize the potential negative impact of defaults in the unsecured loan sector.