Monetary policy: RBI flags financial stability risks from unsecured loans

RBI asks lenders to smell where crisis is likely to come up

Outlier growth in the retail unsecured loan segment prompted the RBI to flag the risks that can arise to financial stability, the Reserve Bank said on Friday.

Comments by Governor Shaktikanta Das while announcing the bi-monthly monetary policy review are just an advisory and the central bank is not announcing any macroprudential measures at this point of time, Deputy Governor J Swaminathan said.

"We would expect, as the first layer of defence, the banks, NBFCs and fintechs, to take appropriate internal controls," he said, warning that the RBI will "examine" the aspect if it does not see action on it.

Earlier in the day, Das said certain components of personal loans are recording very high growth and the RBI is closely monitoring the same 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," he added.

There had already been reports of the banking regulator being concerned about the high growth in the unsecured loans like credit cards, personal loans and microfinance, which has led to speculation over whether it will follow up with regulations to discourage such loan growths.

Swaminathan explained that in the last two years, the unsecured retail credit has grown by 23 per cent as against an overall credit growth of 12-14 per cent in the system, making it an "outlier" segment, which immediately prompts the regulator to flag the issue.

"Strengthen your internal surveillance mechanisms so that any risks that may likely be building up is handled upfront, rather than coming to grief at a later time," Swaminathan said, addressing the financial institutions.

Das explained that the objective of his flag was to make the lenders aware and mindful of a future risk, and made it clear there is no problem at present.

"We are only sensitizing them (lenders) that you have to be careful, you have to just keep your eyes and ears open. And nose also open. You have to smell where the crisis is likely to come up," Das added.

He also said that at the moment, both the banks and non-bank lenders are stable, and added that the gross non-performing asset ratio has improved in June quarter, if we were to go by the unaudited financial results presented by banks.

Swaminathan also acknowledged that the use of digital alternatives to extend loans has led to rapid rise in the unsecured books for many banks.

Das said that if there is any specific issue related to a bank, RBI's supervisors will take it up with such an entity directly.