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June 7, 2024

Evaluating the Imperative for Enhanced Measures to Curb Unsecured Lending: Insights from RBI Governor Shaktikanta Das

In a recent statement, Reserve Bank of India (RBI) Governor Shaktikanta Das emphasized the necessity of assessing whether additional measures are warranted to decelerate the surge in unsecured lending by banks and non-banking finance companies (NBFCs) in India’s financial landscape.

Das highlighted concerns regarding the burgeoning risks to the financial system due to an excessive enthusiasm in lending practices. In November, the RBI had already cautioned against such exuberance and mandated banks to bolster their capital reserves to cover personal loans and lending via NBFCs. Despite a notable moderation observed in recent data pertaining to these loans and advances, Das emphasized the need for vigilant monitoring to determine the potential requirement for further regulatory actions.

Recent figures from the RBI reveal a tempered growth trajectory in personal loans issued by banks, which increased by 19.2% year-on-year as of April 19, compared to a more robust 25.7% surge in the preceding year. Similarly, the growth in loans extended to NBFCs witnessed a significant halving to 14.6% during the same period, indicating a degree of moderation in lending activities.

In his address, Das underscored the crucial role of boards and top management of regulated entities in ensuring adherence to prudent risk management practices. He urged these entities to meticulously maintain risk limits and exposures within the framework of their respective risk appetite, thereby mitigating potential vulnerabilities.

Moreover, the persistent gap between credit and deposit growth rates prompted Das to call for a reassessment by banks’ boards of their business strategies to realign them with evolving market dynamics. Maintaining a prudent balance between assets and liabilities emerged as a pivotal aspect of ensuring financial stability and sustainability in the banking sector, as reiterated by the RBI Governor.

Das also emphasized the significance of exercising regulatory freedom judiciously, particularly concerning interest rates and charges. He stressed the imperative of fair and transparent pricing of products and services to customers, underscoring the pivotal role of regulatory oversight in fostering a conducive and equitable financial environment.

In conclusion, Governor Shaktikanta Das’s remarks shed light on the evolving regulatory landscape aimed at addressing the challenges posed by escalating unsecured lending in India’s banking sector. The RBI’s proactive stance underscores its commitment to safeguarding financial stability and resilience, emphasizing the need for continuous vigilance and proactive measures to mitigate emerging risks and promote sustainable growth in the financial sector.

Read more latest news on R9 News

Jhumpa Lahiri

Jhumpa Lahiri

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