Slowing growth of unsecured loans satisfactory: RBI Governor Malhotra

The moderation in unsecured personal loan growth following the increase in risk weight in November 2023 has been satisfactory and further moderation may not be required, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Friday.

 

When asked whether the regulator is satisfied with the growth slowdown in unsecured loans, Malhotra said: “I think the short answer is yes, we are satisfied. I don't think, you know, more moderation perhaps is required.”

 

The RBI also noted that bank funding to non-banking finance companies (NBFCs) has declined following the increase in risk weight on bank loans to shadow banks.

 

In November last year, the RBI increased risk weightings on unsecured consumer loans and bank loans to NBFCs. As a result, personal loan growth moderated to 12 per cent in December 2024 from 28.4 per cent in December 2023. Bank credit to NBFCs declined from 15 per cent to 6.7 per cent during this period.

 

RBI Deputy Governor Swaminathan J said: “It was an intended impact. Regulatory measures were taken when a certain amount of outlier growth was seen in a few segments. As we had anticipated, it is the very same segments that are witnessing additional stress or slippages at this point. The measures were well thought out, and they have had their intended impact.”

 

Swaminathan noted that risk weight norms on NBFC lending were imposed to moderate the growing interconnectedness between them and banks, which hinted at a concentration risk.

 

“NBFCs have three types of resources: their equity, market borrowings, and bank finance. Bank finance, which used to be about less than 30 per cent, had gone almost close to 46–47 per cent of their balance sheet,” he added.

 

Following the change in norms, NBFCs have diversified their funding sources. According to the RBI’s Financial Stability Report, the growth of bank borrowings in NBFCs’ liabilities declined to 17 per cent from 26 per cent. They have also diversified their funding sources by increasing their foreign currency borrowings and equity capital.

 

“If you look at it, the resources for NBFCs are more or less distributed as one-third each. So, again, it had a certain purpose, which is something that is holding good even today. So, I do not think there is a reason to review any of these measures at this point in time. But as we clarified, we will keep watching the incoming data,” he added.