RBI Governor Shaktikanta Das stated on Thursday that the RBI's measures to control unsecured lending have successfully mitigated potential risks.
Speaking at an international conference on financial resilience at the RBI’s College of Supervisors, Das emphasized that inaction on unsecured lending could have led to more significant problems.
The RBI imposed restrictions on unsecured lending due to concerns over potential issues in the credit market stemming from its rapid growth. Das noted that while overall headline parameters seemed favorable, there was clear evidence of weakened underwriting standards, inadequate appraisals, and a tendency among some lenders to follow risky trends in unsecured lending.
“We believed that if left unchecked, these vulnerabilities could escalate into a bigger problem. Therefore, we decided to act preemptively to slow down credit growth,” Das explained. He expressed satisfaction with the outcome, noting a deceleration in unsecured lending growth as intended.
Specifically, Das highlighted that the growth in credit card portfolios has slowed to 23% from the previous 30%, and bank lending to Non-Banking Financial Companies (NBFCs) has reduced to 18% from 29%.
It is notable that on November 16 of the previous year, the RBI increased the risk weights on unsecured lending and NBFC exposures, requiring banks to allocate more capital to such assets.
“India’s domestic financial system is now significantly stronger than it was before the Covid crisis. The Indian financial system is characterized by robust capital adequacy, low levels of non-performing assets, and healthy profitability among banks and NBFCs,” Das concluded.
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