In a recent meeting with MDs and CEOs of both public sector banks and select private lenders, Reserve Bank of India (RBI) Governor Shaktikanta Das highlighted the alarming trend of ‘outlier growth’ in personal loans within the banking sector. Expressing his concerns, Governor Das urged banking institutions to maintain vigilance to mitigate risks associated with this surge, emphasizing the necessity for a proactive approach in risk management.
The meeting, attended by deputy governors M Rajeshwar Rao and Swaminathan J, also addressed the issue of banks’ exposure to Non-Banking Financial Companies (NBFCs). Governor Das stressed the importance of adherence to co-lending guidelines and the need for a robust customer grievance redressal mechanism to safeguard the interests of customers and ensure the stability of the financial system.
Despite the RBI’s efforts to curb the rise in unsecured loans through increased risk weights in November last year, the personal loan portfolio of lenders has continued to grow substantially. Several banks reported a significant growth ranging from 20% to 60% in the third quarter of the current fiscal year, raising concerns about declining underwriting standards.
The Financial Stability Report released by the RBI in December highlighted signs of risk build-up in consumer credit, despite low delinquency levels. Governor Das expressed worries over the increasing exposure of banks to NBFCs, which stood at Rs 15.2 trillion as of December 2023, marking a 15.1% year-on-year increase.
In addition to these concerns, Governor Das also addressed issues pertaining to business model viability, liquidity risk management, IT and cyber security preparedness, operational resilience, and digital frauds. Banks were encouraged to actively engage in the RBI’s fintech initiatives and bolster their digital banking units to adapt to the evolving financial landscape.
