New Delhi: Ever since small loan options like ‘No Cost EMI’ or ‘Buy Now, Pay Letter’ have come into the market, it has become easier for the common man to make a variety of purchases ranging from Apple, iPhone to small and large. But now the Reserve Bank of India (RBI) has looked into such small personal loans and the use of credit cards. Apart from this, the regulations in this regard have been tightened for the banks. So will buying through options like ‘No Cost EMI’ or ‘Buy Now, Pay Later’ take off soon? Such fears have arisen.
Small loans like ‘chocolate’ are being distributed in the country. Most of these loans are less than 10,000 rupees. Banks are also providing these loans to people in the highly competitive market. The Reserve Bank of India (RBI) has described it as extremely risky for banks’ business and has warned banks several times about it. This time the central bank has taken strict measures in this regard.
Banks need to improve risk management
These small loans should not be converted into NPAs. NPA is a small loan or advance given by the bank to the customer for 90 days. The RBI said that there are risks associated with such loans. Banks need to set aside more money on their balance sheets than ever before to cover that risk. That means banks currently have to make separate provision for NPAs.
This has raised the RBI’s concern
Although NPA is a small amount of loans, RBI fears that it will increase the risk to the country’s financial system. Because all these loans are not secured. That is, people do not pledge any assets against this loan. Statistics related to such loans have raised RBI’s concerns. The growth in unsecured borrowing in the country has been 23 percent, while the normal growth in normal borrowing in the country is only 12 to 14 percent.
Will no cost EMI stop?
The central bank’s crackdown on small loans will have a direct impact on the banking and finance sectors. NPA loans will become expensive for banks and finance companies. As a result these loans will try not to be given to customers. May also start charging interest on credit cards or other types of EMIs from customers. But these rules of RBI will not apply to home, education, vehicle and gold loans etc.
