The RBI has rolled back measures taken in November 2023 to curtail runaway growth in consumer credit, which comprised an increase in risk weights on lending for consumption from 100% to 125%, and on credit to non-banking financial companies by 25 percentage points. As a result of these steps, growth in consumption credit has been moderating, although loan delinquency in the microfinance sector has been rising. The rollback announced by the RBI on Feb 25, 2025, has restored risk weights on consumer lending to 100%, including by the MFI sector, and removed the 25% additional risk weight on bank lending to NBFCs.When these steps were taken towards the end of 2023, India was on a strong growth path (2023-24 GDP growth was 8.2%) and there was a need to address inflationary concerns. However, the GDP print of 5.4% for the second quarter of 2024-25 and estimates of a more than two percentage point fall in GDP growth for 2024-25, coupled with threats to growth from trade barriers in an altered world order wrought by the new US Presidency, has brought growth concerns back to centre stage. Clearly, the Government and the RBI view increased consumption expenditure as key to reviving stuttering GDP growth. After fiscal steps to leave more money in the hands of consumers were announced in the Budget, the RBI has followed suit by reversing its earlier restrictions.
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