The Reserve Bank of India (RBI) is rigorously monitoring the data pertaining to unsecured retail loans and the dependence of non-banking finance companies (NBFCs) on bank funding to evaluate the necessity of implementing further measures to regulate these loans and advances.

In November of the previous year, the RBI expressed concerns regarding the excessive growth in unsecured retail loans and the heavy reliance of NBFCs on bank funding, as stated by Governor Shaktikanta Das.

Recent data indicates some moderation in these loans and advances, according to Das.

On November 16, 2023, the RBI had raised the risk weights on unsecured consumer credit and bank credit to NBFCs to preemptively address any potential risks in these segments. Consequently, the growth of credit in unsecured personal loans like ‘credit card outstanding’ decreased from 34.2% in November 2023 to 23.0% in April 2024, while the growth of bank credit to NBFCs decreased from 18.5% in November 2023 to 14.4% in April 2024.

Das emphasized, “The Boards and top management of regulated entities should ensure that risk limits and exposures for each line of business are well within their respective risk appetite framework. The ongoing gap between credit and deposit growth rates necessitates a reconsideration by bank boards to realign their business strategies. Maintaining a prudent balance between assets and liabilities is crucial.”

The Governor stressed that the RBI is attentive to all aspects of the financial sector, particularly the banking sector. Any further measures deemed necessary will be implemented when required.

Build-up of Risks

Deputy Governor Swaminathan J mentioned, “Essentially, our aim is to highlight any potential build-up of risks. We continuously monitor potential areas of concern and communicate them to the regulated entities. We have advised the boards of regulated entities to reassess and refine their business plans, considering the widening gap between deposit growth and loan book growth. It is up to individual entities, based on their business plans, to make modifications for long-term sustainability as needed.”

He clarified that the RBI has no intention of micromanaging how business is conducted. The central bank focuses solely on the macro-level impact of any risk build-up.