The Reserve Bank of India (RBI) has signaled that more regulatory measures may be on the horizon regarding unsecured loan exposures at banks and non-banking finance companies (NBFCs). This is because the watchdog is not willing to wait for reckless lending to cause widespread financial instability before taking action.
Governor Shaktikanta Das stated in his post-policy statement that the central bank will not hesitate to use prudential instruments in order to protect financial stability.
Stable finances are beneficial to society as a whole. In its careful application of micro- and macro-prudential measures, the Reserve Bank ensures that the financial system remains stable.According to Das's post-policy remark, "we do not wait for the house to catch fire before we act."
Afterwards, in a press conference following the policy announcement, Das stated that the RBI has continued to take an active role in overseeing the financial industry and specific financial institutions, enhancing its supervision techniques. Our goal is to utilize, or at least attempt to utilize, the smell test as well. To that end, "we deal with it appropriately" whenever "we smell any stress building up anywhere at the system level or the entity level," as Das put it.
Nonetheless, Das emphasized once again that the Indian financial system is strong and that all NBFC and bank metrics are higher than the minimal regulatory requirements. In an effort to rein in the sectors' unchecked expansion, the central bank raised risk weights on unsecured consumer loans made by banks and NBFCs and on loans made by banks to NBFCs last month.
Deputy governor Swaminathan J, who oversees inspections and supervision at the RBI, explained that the market's lack of response to the central bank's efforts to encourage participants to implement sufficient internal controls to prevent risk accumulation led to the announcement of the measures.
We have no plans to slow expansion. We have been very careful not to include growth drivers in categories such as small borrowers, home loans, car loans, and SHGs (self-help groups). Lenders are expected to act and design their business models in a way that prevents unnecessary risk accumulation, according to Swaminathan.
Moreover, he mentioned that some parts of the system were expanding at a rate of 24-25% per year, while the remainder of the system was expanding at a rate of 12-14%, and that the disparity needed to be balanced by increasing risk weights. This is more of a precautionary step right now. This is not an attempt to limit lending or cut off liquidity. "The only thing we would like is for lenders to have sufficient risk weights and for prudential monitoring to have limits," Swaminathan stated.
"Prudence at all times" should be the guiding principle for regulators and regulated organizations alike, according to Das.
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