Banks asked to increase loan monitoring system

Reserve Bank of India (RBI) deputy governor K C Chakrabarty today asked banks to increase their loan monitoring mechanism, considering the rising interest rates, for an early detection of building up of stress.

"We are telling the banks to improve their risk management capabilities to manage the possible deterioration in asset quality, because of high interest rates," Chakrabarty said on the sidelines of a Bank of India event. Chakrabarty said the credit growth had been satisfactory till now and RBI felt "things have not gone out of hand" on the asset quality front.

The deputy governor suggested banks should not overexpose to a particular sector. "You (banks) don't do anything too much, (because) then, we will be in problem," he said. With an eye to tame the headline inflation number, RBI raised its key rates 10 times since March 2010, the last being a 25-basis point rise on June 16. In the last announcement, it also hinted at going in for more rises if inflation — which stood at an uncomfortable 9.03 per cent in May — continued to be high. As RBI's tightening gets passed on to the borrowers, who are forced to pay more to service their loans, there is a fear that bank's asset quality may be affected.

 

When asked if RBI had run out of options when it comes to inflation management, Chakrabarty retorted by saying, "we will increase it (the rates) further" and added that inflation will come down gradually.

Stating his displeasure over the focus on the impact on borrowers in the wake of the rate hikes, he said, this is because of the "anti-poor" and "pro-rich" attitude of the media and society in general. When RBI raises rates, the depositor becomes happy, as the deposit rates go up and borrower becomes unhappy, he said, adding, "but you people (media) only reflect the role of borrower because the rich borrows from the society and the poor saves. You are anti poor."