The Daily Brief Why RBI Is Making Borrowing Easier Again!
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Feb 28, 2025 The Reserve Bank of India is rethinking its lending strategy, making borrowing easier after recent restrictions. This shift aims to enhance the financial landscape as India aspires to be an AI superpower. Discussions include how changes in risk weights will impact lending practices and the stability of financial institutions. Additionally, the podcast touches on the development of a large language model for local languages and emerging trends in the tech and finance sectors, highlighting the growing interest in cryptocurrency among the youth.
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Risk Weights in Banking
- Banks create money by lending, requiring them to maintain a capital adequacy ratio.
- Risk weights determine the capital needed for each loan type, influencing bank lending decisions.
Impact of 2023 Risk Weight Increase
- In November 2023, RBI increased risk weights for NBFC and consumer lending, impacting loan availability.
- This led to a decrease in loan growth and a funding crunch for NBFCs and micro-lenders.
RBI's Shift in Priorities
- RBI shifted priorities from controlling overheating to ensuring liquidity for consumption due to India's economic slowdown.
- They cut interest rates, conducted open market operations, and reverted risk weights to stimulate lending.