Monitoring certain components of personal loans in the books of banks, NBFCs, says Guv Das

Das, in his MPC statement, also highlighted that the need of the hour is to make strong risk management standards.

The Reserve Bank of India (RBI) is closely monitoring certain components of personal loans which are recording very high growth, said Governor Shaktikanta Das while announcing Monetary Policy Committee (MPC)’s decisions on October 6.

“Certain components of personal loans which are recording very high growth are being closely monitored by RBI for any signs of incipient stress. Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest,” said Das.

Das, in his MPC statement, also highlighted that the need of the hour is to make strong risk management standards.

“The need of the hour is robust risk management and stronger underwriting standards,” Das said.

The latest sectoral credit growth data with the central bank showed that Indian banks are going aggressive in their personal loan portfolio, with credit to the segment growing by 30.8 percent, compared to 19.4 percent on a year-on-year basis. The total credit to the segment was Rs 47.70 lakh crore in August 2023, compared to Rs 36.47 lakh crore in August 2022.

Also read: Bank credit to personal loan jumps 30.8% in August 2023, shows RBI data

Credit to the sector from April 2023 to August 2023 grew from Rs 40.85 lakh crore to Rs 47.70 lakh crore, growing by 16.8 percent, compared to 7 percent in the corresponding period last year.

Barring consumer durables, advances against fixed deposits and advances to individuals against shares, bonds, etc., saw a strong growth on a year-on-year (YoY) basis.

Das, in the press conference post the MPC said that RBI is only being cautious on the retail loan growth of banks.

Swaminathan Janakiraman, deputy governor, RBI said that the central bank expects banks and NBFCs to watch the growth of the segment.

“RBI is closely monitoring. Banks and NBFCs are expected to keep a watch,” Swaminathan said at the press conference.

RBI, in April 2023, had cautioned banks over their unsecured loan portfolio. These include personal loans, credit cards, small business loans and microfinance loans.

This came after some banks aggressively grew their unsecured portfolio. Earlier, in September 2023, in an interview with Moneycontrol, Shanti Ekambaram, Whole Time Director, Kotak Mahindra Bank, said that the bank plans to grow its unsecured portfolio to the mid-teens.

Also read: MPC meet: RBI to introduce card-on-file tokenisation at bank level, says Das

Federal Bank managing director and chief executive officer (MD & CEO) Shyam Srinivasan said that the bank’s unsecured retail loan portfolio is performing well and the lender plans to ramp up the segment in the next few years.

“Over the next few years, the bank’s unsecured business, which currently stands at 3-4 percent, may become 10 percent,” Srinivasan said.

On GDP growth, the MPC’s forecast for 2023-24 was left unchanged at 6.5 percent.

MPC decision

Monetary Policy Committee (MPC), as expected, left the repo rate, the rate at which the central bank lends short-term funds to banks, unchanged at 6.5 percent on October 6.

Also read: RBI holds repo rate at 6.5%, inflation focus continues; FY24 GDP growth forecast unchanged at 6.5%

“MPC voted unanimously to leave the repo rate unchanged at 6.5 percent,” Das said while announcing MPC’s decision.

Further, the MPC also decided that Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates are also left unchanged at 6.25 percent and 6.75 percent, respectively.

“Global headline inflation is easing but rules above the target of many major economies. Sovereign bond yields have firmed up, US dollar has appreciated, and equity markets have corrected,” Das said in the press conference, adding that India is poised to become the new growth engine of the world.

On GDP growth, the MPC’s forecast for 2023-24 was left unchanged at 6.5 percent.