What measures should consumers take in light of RBI’s order on unsecured loans?

To address the escalating systemic risk arising from the extraordinary expansion of unsecured retail loans, and the accompanying apprehensions, the Reserve Bank of India (RBI) has recently increased the risk weights on unsecured consumer loans like credit cards by 25 percent for both banks and Non-Banking Financial Companies (NBFCs). 

Unsecured loans are those that are not backed by any collateral, such as personal loans or credit card debt. The RBI's order requires the lenders to put in place additional security measures to protect consumers from fraud and identity theft.

In light of this, consumers should ensure they have a thorough understanding of the terms and conditions of any unsecured loan they consider taking. They should also regularly monitor their credit reports and bank statements for any suspicious activity. 

Rohit Arora, CEO and Co-Founder, Biz2Credit says, “Consumers should exercise increased financial prudence by thoroughly evaluating their credit needs and repayment capacity. It's also advisable to explore diverse credit options and ensure a strong credit history to mitigate the impact of higher borrowing costs.”

Borrowers should also be cautious of sharing their personal and financial information online or with unfamiliar lenders. By being proactive and taking these measures, they can safeguard themselves and avoid falling victim to fraudulent activities related to unsecured loans.

Ajay Chaurasia, Vice President, RupeeRedee says, “Consumers should anticipate a potential rise in loan charges specifically concerning unsecured lending. They must monitor their credit scores for favourable interest rates, make informed decisions regarding loan purposes, carefully assess associated charges, avoid multiple loans, and maintain a balanced income/debt ratio. 

“The move from RBI highlights the need for responsible borrowing as  the borrowers need to analyse their credit needs. Impulsive buying without a thought on ability to repay and to cater for unforeseen events in life is a big risk for individual borrowers. Loans availed must be repaid as per the agreed terms,” says Sanjay Agarwal, Head of Retail Division, Edelweiss ARC. 

“Non-payment or delays in payment have a negative impact on the credit score of the borrowers which will eventually result in non-availability of credit when it is truly desired like purchase of a house, an automobile or even higher studies,” added Agarwal. 

Yogi Sadana, Founder, Zype says, “Customers should ensure that they maintain their overall credit bureau profiles and avoid defaulting or making late payment of EMIs. A failure to do this can severely impact their ability to access credit in the future considering that lenders will tighten their credit policies and become more selective in their underwriting process. It is also a good idea for customers to consider deferring non-critical expenses or making big purchases against credit if the interest rate or EMIs offered to them do not fit their budget.”