RBI hikes risk weights to 125%: What changes in 2026

What the RBI changed and why it matters

The Reserve Bank of India (RBI) has tightened capital rules for unsecured lending by increasing risk weights on consumer credit exposures for banks and non-bank financial companies (NBFCs). The move comes after the central bank flagged high growth in certain parts of consumer credit and asked lenders to strengthen internal surveillance and risk controls.

The RBI’s stated intent is to moderate excessive growth in specific credit segments rather than cut off access to personal loans or credit cards. A deputy governor said the tightening is a prudential measure aimed at curbing or moderating credit growth in consumption-led or unsecured credit that does not have a defined end-use.

Higher risk weights for consumer credit at banks

For commercial banks, the RBI has asked institutions to increase the risk weight on consumer credit exposure by 25 percentage points to 125%. Risk weights determine how much capital lenders must set aside against a loan, so a higher risk weight typically means a higher capital buffer requirement.

The revised requirement applies to both outstanding and new credit exposures for consumer lending. The RBI’s decision follows repeated warnings from the central bank about rapid growth in unsecured retail loan categories, including at a recent monetary policy review.

NBFC retail loans also move to 125% risk weight

The RBI has similarly decided that consumer credit exposure of NBFCs classified as retail loans will now attract a risk weight of 125%, up from 100% earlier. By aligning the step-up for both banks and NBFCs, the regulator has signalled that risk build-up is being monitored across the wider credit ecosystem, including lending routed through non-bank intermediaries.

The RBI had earlier asked NBFCs and banks to strengthen internal surveillance mechanisms in response to high growth in certain consumer credit components.

Credit card receivables: banks to 150%, NBFCs to 125%

The central bank has tightened norms for credit cards as well. Credit card receivables of scheduled commercial banks, which attracted a risk weight of 125%, have been increased to 150%.

For NBFCs, the risk weight on credit card exposures has been hiked by 25 percentage points to 125%. As with consumer credit, this increases the capital requirement lenders must maintain against card receivables.

What is excluded from the higher risk weights

The RBI’s higher risk weights for consumer lending do not apply to every retail product. Housing, education, and vehicle loans, as well as loans secured by gold and gold jewellery, are excluded from the new higher risk weights mentioned in the report.

These exclusions matter because they separate secured or purpose-linked lending from unsecured, consumption-led lending that may carry different default dynamics and underwriting challenges.

Banks’ lending to NBFCs: extra capital in some cases

Beyond retail credit, the RBI has also asked banks to allocate additional capital for lending to NBFCs in cases where the current risk weight, based on the NBFC’s external rating, is below 100%. In such cases, the risk weight will be increased by 25 percentage points.

This element of the circular addresses exposures where banks finance NBFC balance sheets, a channel that can amplify retail credit growth when demand is strong.

Governance and policy: board-approved limits and reviews

The RBI has asked banks and NBFCs to review their existing policies and put in place board-approved limits on exposure to the consumer loan segment. The focus is particularly on unsecured lending.

It has also said that top-up loans against movable assets that are inherently depreciating, such as vehicle loans, will have to be treated as unsecured loans for credit appraisal, exposure limits, and related purposes.

What triggered the move: rapid growth in unsecured credit

Indian banks have seen a sharp rise in unsecured loans, mainly personal loans and credit cards, which has outpaced overall bank credit growth of about 15% over the past year, according to the report. Reuters also noted that the RBI was particularly concerned about a surge in very small personal loans of up to Rs 10,000 taken for three to four months.

Against this backdrop, the RBI’s higher capital requirement is designed to force lenders to price risk more conservatively and to strengthen underwriting and monitoring for fast-growing categories.

Likely impact on borrowers and lenders

Bankers and analysts cited in the report said the higher capital requirement could make loans costlier and curb growth in the segment. One estimate in the report suggested lending rates in the unsecured personal loan segment could rise by 25 to 50 basis points.

For lenders, the practical impact is higher capital allocation per rupee of unsecured exposure, which can change product pricing, growth targets, and portfolio mix. For consumers, the immediate transmission is more likely through borrowing costs and tighter credit filters rather than an outright stop in credit supply, consistent with the deputy governor’s remarks.

Key numbers at a glance

What to watch next

The RBI has framed the step-up in risk weights as a prudential move to moderate growth in unsecured and consumption-led credit. The operational follow-through will depend on how banks and NBFCs update board-approved exposure limits, treat top-up loans against depreciating assets, and adjust credit scoring, pricing, and portfolio caps.

Any further regulatory updates are likely to focus on how lenders implement these rules and whether unsecured loan growth cools without disrupting access to credit for borrowers with strong repayment capacity.