Is shopping with No-cost EMI going to stop? RBI did this planning!


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Ever since small loan options like 'No Cost EMI' or 'Buy Now Pay Later' have come in the market. It has become easy for people to do many types of shopping, from Apple iPhone to big and small. But now the Reserve Bank of India has turned its attention to the use of such small personal loans and credit cards. Besides, the rules related to this have been tightened for banks. So will shopping with options like 'No Cost EMI' or 'Buy Now Pay Later' stop soon?

Small loans are being distributed in the country like 'chocolate'. In this too, most of the loans are of less than Rs 10,000. Banks are also distributing these loans to people with great competition. The Reserve Bank of India (RBI) has described this as very risky for the banks' business and has warned the banks several times regarding this. Now the Central Bank itself has taken strict action regarding this.

Banks will have to improve risk management

These small loans should not convert into NPA. Therefore, RBI has given guidelines to banks for better risk management. RBI says that to meet the risks associated with such loans, banks will now have to keep more money separate in their balance sheets than before. This means that just as banks currently arrange separate funds for NPAs, they will have to do the same for this type of loan.

This alone will not suffice. Banks will also have to develop a board-monitored process that will protect against the increased risk to the financial system from such loans. On Thursday itself, RBI increased the risk weightage for banks, credit card companies and non-banking finance companies.

These figures increased RBI's concern.

Even though these are loans of small amounts, RBI fears that this will increase the risk in the country's financial system, because all these loans are unsecured. This means that people do not pledge any asset in exchange for these loans. Data related to unsecured loans has also increased the concern of RBI. The growth of taking unsecured loans in the country has been 23 per cent, whereas the normal growth of taking credit in the country is only 12 to 14 per cent.

Will No Cost EMI be stopped?

This step of the central bank will have a direct impact on the banking and finance sector. Such loans will become expensive for banks and finance companies, due to which they will try to avoid giving these loans very easily. It is possible that they may start charging more interest from customers on credit cards or other types of EMIs. However, these RBI rules will not apply to home, education, vehicle gold loans etc.