In a compelling address at the annual Ficci-IBA conference, RBI Governor Shaktikanta Das raised a red flag on various aspects of the financial sector, urging caution and preventive measures.
Das underscored the imperative for banks and non-banking financial institutions (NBFCs) to steer clear of “all forms of exuberance.” He expressed concern about the reliance on high-cost deposits by banks and the proliferation of model-based loans offered by fintech firms.
The recently implemented stringent regulations on unsecured lending, according to Das, are strategically designed to instill sustainability in the financial sector. He clarified that these measures are preemptive, calibrated, and targeted, with exemptions granted for segments like housing loans, vehicle loans, and small business credits due to their positive impact on economic growth.
The RBI governor identified four key areas demanding meticulous attention. Firstly, he cautioned against an unchecked acceleration in credit growth, emphasizing the need for sustainability at various levels. He called for a careful examination of liabilities, stressing the elongation of loans against an increased reliance on high-cost short-term bulk deposits.
Furthermore, Das highlighted the escalating interconnectedness between banks and NBFCs, posing a potential contagion risk. He urged continuous evaluation of exposure levels and advocated for NBFCs to diversify their funding sources, reducing reliance on bank funding.
Microfinance institutions (MFIs) weren’t spared from Das’ scrutiny, as he cautioned against usurious interest rates. He emphasized the responsibility of microfinance lenders to ensure transparent and non-exploitative interest rate practices.
The fintech sector received a specific warning about algorithm-based lending models. Das stressed the necessity for periodic testing and scrutiny of these models to prevent risks arising from information gaps.
Switching gears, the governor touched upon the agricultural sector, expressing optimism about its resilience in the face of challenges. He highlighted ongoing diversification in exports as a factor bolstering the economy’s ability to withstand shocks.
In addressing concerns related to inflation, Das reaffirmed the RBI’s commitment, pointing out the rupee’s minimal volatility compared to its counterparts, even amidst heightened US Treasury yields and a stronger US dollar.
Das concluded by echoing the need for vigilance in the financial sector to prevent stress buildup, underlining the importance of sustained growth and prudent risk management.
