RBI Notes Moderation in Unsecured Retail Loans, Urges Prudent Risk Management
RBI Notes Moderation in Unsecured Retail Loans, Urges Prudent Risk Management

The Reserve Bank of India (RBI) has observed a slowdown in unsecured retail loans and advances, following concerns raised in November 2023. RBI Governor Shaktikanta Das highlighted that there has been a moderation in the growth of personal loans and reduced reliance by Non-Banking Financial Companies (NBFCs) on bank funding. The RBI continues to monitor these trends closely and has advised financial institutions to maintain risk within acceptable limits.

"In November last year, we expressed concerns about the excessive growth in unsecured retail loans and the over-reliance of NBFCs on bank funding. Recent data indicates that there has been some moderation in these loans and advances," Das said during the Monetary Policy Committee's meeting.

Credit growth in unsecured personal loans, such as credit card outstanding, decreased from 34.2% in November 2023 to 23.0% in April 2024. Similarly, bank credit growth to NBFCs dropped from 18.5% in November 2023 to 14.4% in April 2024.

The central bank is currently analyzing the data to determine if further measures may be required.

"Boards and top management of financial institutions should ensure that risk limits and exposures for each line of business are well within their respective risk appetite frameworks," Das emphasized. He also pointed out the ongoing gap between credit and deposit growth rates, urging banks to reassess their business strategies.

In November 2023, the RBI had increased the risk weights on unsecured consumer credit and bank credit to NBFCs as a preventive measure against potential risks in these segments.

The RBI has been taking additional measures to ensure financial stability. Recently, the central bank proposed new guidelines on project financing, which would require lenders to set aside 5% of outstanding exposures during the construction phase, up from the current 0.4%. Once operational, this requirement will reduce to 2.5%.

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