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Informist, Friday, Nov. 8, 2024

 

MUMBAI – The Reserve Bank of India's decision to hike risk weights on unsecured lending and caution against it was merited and on time, as funds from personal loans are being invested in the stock market, said K.V. Kamath, Independent Director and Chairman of Jio Financial Services Ltd. at the Business Standard BFSI Summit on Friday. "But who are the people who have lost the money and where did that money come from? That has come from the unsecured loan market. That is why I think the Reserve Bank of India is right to caution on unsecured lending," Kamath said.

 

The RBI in November 2023 increased the risk weight on exposure to consumer credit, including personal loans, of commercial banks and non-banking finance companies to 125% from 100%. The move made personal loans more expensive. "A back-of-the envelope calculation shows you that amount is more than 150,000 crores (INR 1.5 trillion). Probably 1.7 lakh crores (INR 1.7 trillion), if you gross it out properly. In the F&O (futures and options), the losses that individuals suffered," Kamath said. 
 

RBI's recent clampdown on non-bank finance companies was also timely and warranted, Kamath said. "NBFC's are encouraging mobile leveraging and there are people who have taken six-seven-eight-ten-loans. It's a kind of mess," he said. Kamath said that financial technology companies are lending at credit scores of 550, which was baffling as banks would not lend below credit scores of 700 or 750. 

 

Kamath also spoke about the importance of organisations like National Bank for Financing Infrastructure and Development which can take the load of long-term lending. "The government's idea of setting up NaBFID is absolutely timely and absolutely correct. One major change that happened between 1996 and now is you have got a robust insurance and pension fund industry which has needs for long term deployment (of funds)," Kamath said. 

 

Kamath said he hopes that NaBFID will grow in scale and there will be more such organisations coming up to lend because banks are not the optimal choice for long-term lending for 10 and 15 years for infrastructure. "Banks are lending 10 and 15 year money for infrastructure. Their own liability profile is one year. So you take one year money and try to wrap it as 15-year money, somebody is going to hurt sometime," he said.  End

 

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

 

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