Private sector banks like HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank, raised interest rates on personal loans over the past few months, the Economic Times reported, adding that this comes after the Reserve Bank of India (RBI) deemed personal loans as riskier back in November 2023.

A police officer walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai (Reuters)

How much have the interest rates for personal loans increased?

The lending rates have increased by 30-50 basis points, the Economic Times wrote, citing data from the disclosures of the banks.

What are the new interest rates of the banks?

HDFC Bank’s personal loans come at an interest rate of 10.75% per annum since April, compared to 10.35% between January and March.

Kotak Mahindra Bank’s personal loans have interest rates starting from 10.99%, compared to 10.50% towards the end of 2023.

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ICICI Bank now charges 10.80% interest compared to 10.50% earlier.

Axis Bank charges 10.99% from 10.49% at the time of the RBI’s risk announcement.

Why have banks increased interest rates for personal loans?

The RBI increased the risk weightage of personal loans to 125% from 100% in November 2023. For credit card loans, it was increased from 125% to 150%.

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This was done to make banks more cautious about personal loans and discourage them from lending too much of such types of loans due to too much of these loans being given out.

What is the result of the risk weightage hike?

The speed of retail loan growth reduced to 17.8% in May 2024 compared to 19.1% in May 2023, Business Standard wrote, citing RBI data.

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The growth of the “other personal loans” category, which includes unsecured loans, declined to 17.3% from 25.2% in the same time period.