Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said inaction on unsecured loans could lead to ‘big problems’. He said the RBI’s crackdown on such activities has had the desired effect of slowing down the growth in unsecured loans. Addressing an international conference on financial soundness at the RBI College of Supervisors here, Das said the ban on unsecured loans was a result of the view that a rise in unsecured loans could pose a potential problem in the market.
He said overall the key parameters look good, but there is ‘clear evidence’ of poor standards, lack of proper valuation and a blind caste mentality among some lenders to promote unsecured loans. “We thought that if these vulnerabilities were not addressed, it could become a big problem,” Das said. So, we thought it is better to act in advance and slow credit growth.”
He expressed satisfaction that the RBI’s action has had the desired effect, as the growth in unsecured loans has actually slowed down. Das said the RBI’s exposure to the credit card segment has come down from 30 per cent earlier to 23 per cent now, while the growth in bank lending to non-banking financial companies (NBFCs) has come down to 18 per cent from 29 per cent earlier. St. has now arrived.
On November 16 last year, the RBI had increased the risk weight on unsecured loans and loans to NBFCs, which would require banks to hold more capital on such assets. The RBI Governor said, “India’s domestic financial system is now in a much stronger position than before entering the Covid crisis. The Indian financial system is now in a very strong position, characterized by strong capital adequacy, low levels of non-performing assets (NPAs) and healthy profitability of banks and non-banking lenders.