News
Not acting on unsecured loans could have created a bigger problem: Das | Financial news
He expressed satisfaction that the RBI’s action had had the desired impact as the growth of unsecured loans had indeed slowed down
It may be noted that on November 16 last year, the RBI increased risk weights on unsecured loans and exposure to NBFCs, which will lead to banks setting aside larger amounts of capital for such assets | (Photo: PTI)Press Trust of India Bombay
RBI Governor Shaktikanta Das on Thursday said that failure to act on unsecured loans could have created a “bigger problem”, and the RBI’s actions on such practices had the desired impact of slowing growth in the most risky.
Addressing an international conference on financial resilience at the RBI College of Supervisors here, Das said the restrictions on unsecured loans were the result of a view that there could be a potential problem in the credit market due to the growth in unsecured loans.
Click here to connect with us on WhatsApp
The broad parameters of the headlines looked good, but there was “clear evidence” of dilution of underwriting standards, a lack of adequate valuations and a mindset to jump on the bandwagon to increase unsecured lending among some lenders, he added.
“We thought that if left unaddressed, these vulnerabilities could become a bigger problem. Therefore, we thought it would be better to act early and slow down credit growth,” said Das.
He expressed satisfaction that the RBI’s action had had the desired impact as the growth of unsecured loans had indeed slowed down.
Das said growth in credit card portfolios has slowed to 23 percent from 30 percent before the Reserve Bank of India’s (RBI) action, while growth in bank loans to non-banking financial companies (NBFC) has slowed to 18 percent. Percent. from the previous 29 percent.
It may be noted that on November 16 last year, the RBI increased risk weights on unsecured loans and exposure to NBFCs, which will make banks reserve larger amounts of capital for these assets.
“India’s domestic financial system is now in a much stronger position than it was before we entered the COVID crisis period. The Indian financial system is now in a much stronger position, characterized by robust capital adequacy, low levels of non-performing assets, and healthy profitability of banks and non-bank lenders i.e. NBFCs,” Das said.