Stricter Regulations on Personal Loans by RBI

Starting the new year, retail borrowers will face increased challenges in securing multiple personal loans due to the Reserve Bank of India's (RBI) new norms. The key change involves lenders now being required to update credit bureau records every 15 days, a significant reduction from the previous one-month interval.

This adjustment aims to provide lenders with more accurate and timely data on borrowers' credit behavior, thereby enabling better risk assessment and reducing the likelihood of over-leveraging. Sachin Seth, chairman at CRIF High Mark, emphasized the importance of this change, stating, "More frequent updates allow lenders to capture defaults or payments more accurately and closer to real-time."

Impact on Borrowers and Lenders

The directive, issued in August, mandates that all lenders and credit bureaus implement the 15-day reporting cycle by January 1. This move is expected to significantly reduce the blind period in credit evaluations, ensuring that lenders have a clearer, more current view of a borrower's financial activity. Additionally, it aims to curb practices like "evergreening," where borrowers use new loans to cover old defaults, thereby fostering a healthier lending ecosystem.

SBI chairman C S Setty highlighted the potential benefits of this regulation, noting that it would likely tone down multiple borrowings by the same individual, thus preventing over-leveraging and promoting financial stability among new-to-credit borrowers.