RBI's Risk Weight Rules on Unsecured Loans (2026): Why Your Personal Loan Interest Rate Moved and What Changed Since
By Nitish Bharadwaj · Published Sep 22, 2026 · 6 min
RBI raised the risk weight on consumer credit exposure — personal loans and credit card receivables, excluding home, education, vehicle, and gold loans — from 100% to 125% for banks and NBFCs via a November 2023 circular, forcing lenders to hold more capital per unsecured loan and pushing many to raise rates or tighten approvals. A February 2025 circular partially reversed this for bank lending to NBFCs. This guide explains what a risk weight is and why it moves your EMI without RBI touching the repo rate.
Borrowers who saw their personal loan or credit card interest rate tick upward in late 2023 or through 2024 usually blamed the repo rate, their own CIBIL score, or their lender's mood. In most cases the real cause was neither: RBI had quietly raised the amount of capital banks and NBFCs must hold against every rupee of unsecured consumer credit, and lenders passed that higher capital cost straight into pricing. That single regulatory lever — the risk weight — moves rates without RBI ever touching the policy rate everyone actually watches.
What a Risk Weight Actually Is
A risk weight is a multiplier banking regulators assign to a category of loan, used to calculate how much capital a lender must set aside against it under Basel-based capital adequacy norms. A 100% risk weight on a ₹1 lakh loan means the lender treats it as ₹1 lakh of risk-weighted assets for capital purposes; a 125% risk weight means the same loan counts as ₹1.25 lakh — a quarter more capital tied up against an identical loan, capital that earns the bank nothing while it sits there as a buffer. Riskier loan categories carry higher risk weights than safer, collateral-backed ones, which is why unsecured personal loans and credit card receivables have always been weighted more heavily than a home loan or a loan against gold.
The November 2023 Increase
RBI raised the risk weight on consumer credit exposure — a category covering personal loans and credit card receivables, but explicitly excluding home loans, education loans, vehicle loans, and gold loans — from 100% to 125% for both banks and NBFCs, effective from the date of the circular. Bank exposure to NBFCs for on-lending was raised too, adding a second layer of cost for NBFCs that fund their own lending by borrowing from banks. The stated purpose was to cool a period of unusually fast growth in unsecured retail lending that RBI judged was building up systemic risk faster than underwriting standards could keep pace with.
| Exposure Type | Risk Weight Before | Risk Weight After |
|---|---|---|
| Bank/NBFC consumer credit (personal loans, credit cards) | 100% | 125% |
| Bank exposure to NBFCs (on-lending) | Actual rating-based weight | +25 percentage points over the applicable weight |
| Home, education, vehicle, and gold loans | Unchanged | Unchanged — explicitly excluded from the hike |
How Lenders Actually Responded
A higher risk weight doesn't force a lender to raise rates — it raises the capital cost of holding the loan, and lenders choose how to recover that cost. In practice, most large banks and NBFCs responded with some mix of modestly higher interest rates on new unsecured personal loans and credit cards, tighter underwriting criteria that made approval harder at the margins, and in some cases a deliberate slowdown in unsecured loan book growth to manage capital more conservatively. Public sector banks, generally more capital-comfortable, absorbed more of the cost than several NBFCs that were already running tighter to their regulatory capital floor.
The Partial Reversal in 2025
RBI eased part of this framework via a February 2025 circular, restoring the risk weight on bank lending to NBFCs closer to the rating-based approach that applied before the November 2023 increase, effective from April 1, 2025. This reversal was specifically about bank-to-NBFC exposure — the funding NBFCs draw from banks to run their own lending books — rather than a full rollback of the 125% weight on consumer credit itself, which has remained in place. The net effect eased NBFC funding costs somewhat without changing the core capital treatment of a personal loan or credit card sitting directly on a bank's own book.
What This Means If You're Borrowing Now
- Compare a personal loan against a secured alternative before assuming an unsecured loan's higher rate is purely about your own credit profile — a loan against fixed deposit or loan against mutual funds sits outside this risk-weight category entirely and is typically priced lower for exactly that reason
- NBFCs and smaller lenders that were running closer to their capital limits in 2023–24 may still price unsecured credit at a premium to large banks, even at an identical CIBIL score, since the underlying capital cost differs by lender
- A strong CIBIL score still meaningfully lowers your rate within whatever the risk-weight-adjusted pricing floor is — see our guide on CIBIL score's exact impact on your loan rate for how much a higher score is actually worth in practice
- If you're being quoted a rate that seems high relative to your credit profile, ask directly whether it reflects the lender's own funding cost under this framework — some lenders will adjust pricing for a strong applicant even within a higher risk-weight regime
None of this changes what actually gets you approved at the best available rate — a healthy CIBIL score, manageable existing obligations, and a track record of on-time repayment still do the heaviest lifting. What the risk-weight framework changes is the floor beneath that pricing, industry-wide, regardless of how strong any individual borrower's file looks.