Banks, non-banking monetary firms (NBFCs) and different monetary entities should proceed to do stress-testing of their books, Das stated.
“On the present juncture, there might not be any rapid trigger for fear. However to stay up to the mark, banks and NBFCs can be nicely suggested to take sure precautionary measures,” he stated at an occasion organized by business foyer Ficci and the Indian Banks’ Affiliation (IBA).
The governor’s speech comes days after the RBI determined to extend threat weights on shopper loans and loans to NBFCs in an try and decelerate the tempo of unsecured credit score progress. The regulator has been cautioning lenders in opposition to dangers emanating from such unfettered progress, and on Wednesday Das stated these measures had been focused and pre-emptive.
The expansion in some unsecured loans—these not backed by collateral—has surpassed whole credit score progress by a large margin. Bank card excellent elevated 30% year-on-year ) in September, different private loans grew 25%, and shopper sturdy loans rose 11%. Total financial institution credit score progress was 20% in the identical interval, confirmed RBI information.
Das outlined 4 factors of concern regarding credit score progress—sustainability of progress, bank-NBFC hyperlinks, pricing of loans by microfinance establishments (MFIs) and overreliance on analytics.
First, whereas credit score progress is accelerating, banks and NBFCs ought to make sure that the expansion on the total, sectoral and sub-sectoral ranges stays sustainable. Lenders additionally must strengthen their asset legal responsibility administration, and focus extra on their liabilities aspect.
“In sure instances, we’ve got noticed elevated reliance on high-cost, short-term bulk deposits, whereas the tenure of the loans, each in retail and company loans, is getting elongated,” he stated.
Second, the rising significance of NBFCs, and their better interconnectedness with banks requires shut consideration, Das stated. NBFCs are giant web debtors of funds from the monetary system, and banks’ publicity to them is the very best. Banks are additionally amongst key patrons of the debentures and industrial papers issued by NBFCs, he stated, including that NBFCs additionally keep borrowing relationships with a number of banks concurrently.
“Unnecessary to state that such concentrated linkages might create a contagion threat. Although the banks are nicely capitalized, they have to continually consider their publicity to NBFCs and the publicity of particular person NBFCs to a number of banks,” he stated.
NBFCs, he stated, should broad-base their funding sources and scale back overdependence on financial institution funding.
Third, Das stated MFIs should judiciously use their freedom to cost loans. Since MFIs serve the marginalized clientele, they’ve to remember the affordability and compensation capability of debtors, he stated.
In March 2022, the RBI had eliminated pricing caps on small loans given by NBFC-MFIs, permitting better flexibility to set lending charges.
“Although the rates of interest are deregulated, sure NBFC-MFIs look like having fun with comparatively greater web curiosity margins. They’re anticipated to make sure that rates of interest are clear and never usurious,” he stated.
Fourth, Das additionally cautioned lenders in opposition to an excessive amount of reliance on the chance fashions of tech-driven entities beneath lending collaborations. He stated that though elevated collaboration of banks and NBFCs with fintechs is permitting the introduction of progressive services, model-based lending by analytics requires shut consideration. Lenders, he stated, must be cautious in relying solely on preset algorithms as assumptions primarily based on which the lending fashions are operated.
“These fashions ought to be sturdy, and examined and retested periodically. It’s essential to be watchful of any undue threat build-up within the system resulting from info gaps in these fashions, which can trigger dilution of underwriting requirements,” stated Das.
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Up to date: 22 Nov 2023, 05:58 PM IST
Supply: Live Mint