The Reserve Bank of India has seen some moderation in certain loans and advances after it flagged concerns around unsecured retail lending in November, Governor Shaktikanta Das said on Friday. It also said that banks must maintain a prudent balance between assets and liabilities.
“In November last year, we had flagged certain concerns on excessive growth in the unsecured retail loans and over-reliance of NBFCs on bank funding. Recent data suggests that there is some moderation in these loans and advances,” Das said while announcing Monetary Policy Committee‘s meeting decisions.
Credit growth in unsecured personal loans such as ‘credit card outstanding’ declined from 34.2 per cent in November 2023 to 23.0 per cent in April 2024, while bank credit growth to NBFCs declined from 18.5 per cent in November 2023 to 14.4 per cent in April 2024.
The central bank is currently monitoring data to see if further measures may be necessary.
“The Boards and top management of REs should ensure that risk limits and exposures for each line of business are kept well within their respective risk appetite framework,” Das said. He flagged the persisting gap between credit and deposit growth rates, and asked the banks to rethink on their strategy around business plans.
The RBI had hiked the risk weights on unsecured consumer credit and bank credit to NBFCs in November 2023 to pre-empt build up of any potential risk in these segments.
RBI has been taking other measures as well to ensure financial stability. Recently, the RBI proposed new guidelines on project financing, requiring lenders to set aside 5 per cent of outstanding exposures during the construction phase, up from the current 0.4 per cent. Once operational, the requirement will drop to 2.5 per cent.
