RBI Policy
Satisfied with unsecured loan book growth moderation
This story was originally published at 16:40 IST on 7 February 2025
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--RBI Malhotra: We are satisfied with moderation in personal loans
--RBI Malhotra: Don't need more moderation in personal loans
--RBI Swaminathan: Moderation in personal loans was along expected lines
--RBI Swaminathan: No intention to prescribe growth rate for personal loans
--RBI: Will intervene only on excess heating, risk build-up in system
--RBI Malhotra: Have not asked banks, regulated cos to stop personal loans
MUMBAI – The Reserve Bank of India is satisfied with the moderation seen in credit growth in the unsecured segments, RBI Deputy Governor Swaminathan J. said in the post-Monetary Policy press conference on Friday.
In November 2023, the RBI had raised the risk weight on exposure to consumer credit, including personal loans of commercial banks and non-bank finance companies to 125% from 100% earlier. It also increased the risk weight on credit exposure of banks to non-banking finance companies by 25%, over and above the risk weight associated with the rating of these NBFCs.
"The regulatory action was taken when a certain amount of outlier growth was seen in a few segments. As we had anticipated, it is the same segments which are witnessing additional stress and slippages at this point of time. So, the measures were well thought out. This moderation is alright at this point in time," Swaminathan said. However, being a regulator, the RBI will continue to watch the incoming data but for now, the moderation is playing out on expected lines, he added.
Personal loans registered a 16.3% on-year growth as on the fortnight ended Nov. 29 compared with 18.7% for the corresponding fortnight of the previous year, largely due to decline in growth in 'other personal loans', 'vehicle loans' and 'credit card outstanding', as per the Reserve Bank of India's sectoral deployment data released on Dec. 31.
The credit growth to services sector was at 14.4% on year as on the fortnight ended Nov. 29 compared with 22.2% for the corresponding fortnight of the previous year, primarily due to lower growth in credit to non-banking financial companies and trade segment.
Swaminathan said that it is not the job of the regulator to provide a growth rate target or a product mix as it varies from entity to entity. "All we see is that whether they are in tune with the guidelines, if there is any heating in the system or any possible risk build-up is happening. That is where we would like to intervene. Otherwise, it is not our intention to prescribe any model," he said.
RBI Governor Sanjay Malhota said that the central bank had not asked banks to stop lending to these segments. He added that the move was not abnormal and brought back the risk weights to the level that they already were prior to COVID.
When asked about the rising stress in microfinance, Swaminathan said that at this point there was no further measure being contemplated. "For handling the stress, there are other methods to prescribe and handle entities where any outliers are seen. But, a macro-prudential measure at this point of time is not under our contemplation," Swaminathan said. End
Reported by Kshipra Petkar
Edited by Akul Nishant Akhoury
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