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Informist, Wednesday, Oct. 9, 2024

MUMBAI – The Reserve Bank of India is closely monitoring data on stress in unsecured segments such as loans for consumption purposes and microfinance and credit card outstanding of banks and non-bank lenders and will take steps as necessary, Governor Shaktikanta Das said on Wednesday. 

"The Reserve Bank is closely monitoring the incoming information and will take measures, as may be considered necessary. Banks and NBFCs (non-banking finance companies), on their part, need to carefully assess their individual exposures in these areas, both in terms of size and quality," Das said announcing the outcome of the Monetary Policy Committee. Das reiterated that the financial system continues to be healthy, stable and resilient.

Later addressing a post-policy press conference, RBI Deputy Governor Swaminathan J. said certain segments saw elevated slippages and higher credit costs. "The (governor's) message has been targeted to select NBFCs, which are pursuing a high-risk, high-growth strategy and also to certain segments, which are likely to get into stress in our estimate. It is not a generalised message for the sector," Swaminathan said.

Deputy Governor Rajeshwar Rao said lenders are expected to price in the true risk of the exposure. Rao said the elevated credit losses seen in the microfinance space are due to poorer underwriting standards. "The underwriting standards have to be strengthened so that the risk is properly priced in. If that happens, then there is no real contradiction in the rates and the borrowers will get the rates that are more appropriate," Rao said.

Rao also said the RBI has got some feedback on revising the guidelines for microfinance institutions and the central bank will review the guidelines at an appropriate time.

The governor said the central bank does not consider banks and non-bank lenders as adversaries and has always given them adequate time to take corrective measures. "As a regulator and the supervisor of the financial system of the country, it is our duty to point out where we see potential risks becoming more serious and advise them to take corrective actions," Das said.

"Given the wider purpose for credit inclusion served by MFIs (microfinance institutions) and HFCs (housing finance companies), we don’t expect a general tightening of guidelines for the sector," Anil Gupta, senior vice president and co-group head of financial sector ratings at ICRA said. "However, given the cautionary statements by the regulator, there could be more regulatory scrutiny around the business models and risk practices of some specific NBFCs. If the regulatory concerns remain unaddressed, entity-specific action cannot be ruled out.

In his statement, Das also said continued attention needs to be given to potential risks from inoperative deposit accounts, cybersecurity landscape, and mule accounts. End

Reported by Kshipra Petkar

Edited by Saji George Titus

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