"Rising unsecured consumption loans among young borrowers concern RBI"
Unsecured retail loan
credit extended without collateral (personal loans, credit cards, BNPL); higher default risk than secured loans
GNPA ratio
Gross Non-Performing Asset ratio; share of loans overdue beyond 90 days as a percentage of total advances
India's credit market has historically been characterised by structural under-penetration — a large share of the population lacked access to formal credit, relying instead on informal moneylenders at usurious rates. The Reserve Bank of India (RBI) has, over successive policy cycles, sought to deepen financial inclusion through priority-sector lending norms, the Jan Dhan–Aadhaar–Mobile (JAM) trinity, and the emergence of regulated fintech intermediaries. The Credit Information Companies (Regulation) Act, 2005 established the legal framework for credit bureaus such as TransUnion CIBIL and CRIF High Mark, enabling lenders to assess borrower creditworthiness systematically. Yet the early-2010s experience — when aggressive bank lending to corporates at suppressed real interest rates produced a severe Non-Performing Asset (NPA) crisis — demonstrated that credit expansion without adequate risk screening can destabilise the financial system. The Insolvency and Bankruptcy Code (IBC), 2016 was a structural response to that crisis, creating a time-bound resolution mechanism for stressed assets. The current episode of rapid retail credit growth, particularly in unsecured consumption loans, echoes some of those earlier warning signs, though the scale and sectoral composition differ significantly.
The RBI's Financial Stability Report (FSR) — published biannually — is the primary instrument through which the central bank communicates systemic risk assessments to the public and to regulated entities. It monitors Gross Non-Performing Asset (GNPA) ratios, sectoral credit concentration, and borrower-level leverage metrics. The FSR's flagging of household debt accumulation, particularly among lower-rated borrowers, signals that the RBI is moving from passive observation to active supervisory concern — a precursor to potential macroprudential intervention.
Unsecured retail loans are credit facilities extended without collateral — personal loans, credit cards, consumer durable loans, and small-ticket fintech loans. Unlike housing loans (secured against property) or gold loans (secured against jewellery), unsecured loans carry higher default risk for lenders, which is why their GNPA ratio (1.7–1.8%) is structurally higher than that of secured retail loans (0.7%). The risk-weight framework under Basel III norms requires banks to hold more capital against unsecured exposures, and the RBI has previously used risk-weight increases as a macroprudential tool — it raised risk weights on consumer credit and bank credit to non-banking financial companies (NBFCs) in late 2023 precisely to cool unsecured lending growth.
The fintech dimension is particularly significant. Fintech lenders — operating under the RBI's digital lending guidelines — have captured 56.8% market share in the small-ticket personal loan segment (below Rs 50,000), growing credit at 41.6% against the segment's overall growth of 20.1%. …
In India, as the 'Lender of Last Resort', the function of the central bank in its usual course normally includes which of the following?
1.Lending to trade and industry bodies when they fail to obtain credit from other sources
2.Providing liquidity to the banks having a temporary crisis
3.Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.
Which one of the following is likely to be the most inflationary in its effects?
Which of the following activities constitute real sector in the economy?
1.Farmers harvesting their crops
2.Textile mills converting raw cotton into fabrics
3.A commercial bank lending money to a trading company
4.A corporate body issuing Rupee Denominated Bonds overseas
Select the correct answer using the code given below:
Which of the following are the sources of income for the Reserve Bank of India?
I.Buying and selling Government bonds
II.Buying and selling foreign currency
III.Pension fund management
IV.Lending to private companies
V.Printing and distributing currency notes
Select the correct answer using the code given below.
With reference to unsecured retail loans in India, consider the following statements:
1.Unsecured retail loans have a higher Gross NPA ratio than secured retail loans.
2.Fintech lenders hold a majority market share in the small-ticket personal loan segment (below Rs 50,000).
3.The Reserve Bank of India raised risk weights on unsecured consumer credit in 2023 as a macroprudential measure.
Which of the statements given above is/are correct?
Consider the following statements regarding India's household credit landscape:
1.The share of over-leveraged consumers in India's credit-active base peaked at 18% in FY24 before easing.
2.Consumption borrowing has been driven substantially by borrowers under 35, who now constitute 39% of the credit-active base.
3.Outstanding gold loan borrowings have remained broadly stable over the past four years.
Which of the statements given above is/are correct?
Assertion (A): Consumption loans pose a greater financial stability risk than housing loans even when their absolute outstanding amounts are smaller.
Reason (R): Unlike housing loans, consumption loans do not create productive assets that generate future income streams to service the debt.
Which of the following is correct?
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