Shaktikanta Das said that the recent measures to tightenpersonal loan norms are pre-emptive, calibrated and targeted.- The governor is of the view that banks and NBFCs are increasingly relying on high-cost short term bulk deposits, while the tenure of the loans is getting elongated.
- Lenders must not rely solely on pre-set algorithms while lending through analytics, the regulator said.
“In fact, there is a strong case for companies in the real sector also to stress test their businesses and balance sheets,” said Das. Last week, RBI increased the risk weightage for unsecured loans given out by banks and non-banking financial institutions (NBFCs). But education, auto, housing and MSME loans were left out of the new norms.
Real estate companies have been on an expansion spree, after the sector was re-energized since the pandemic.
‘Avoid all forms of exuberance’
The governor who was speaking at the FIBAC conference also had a few suggestions for banks and NBFCs who are enjoying the phase of high credit growth. Credit expansion and its pricing should be in sync with risks, and all forms of exuberance must be avoided, he advised.
He also said that banks and shadow banks must strengthen their asset liability management and give greater attention to their liabilities side. “In certain cases, we have observed increased reliance on high cost short term bulk deposits while the tenure of the loans, both in retail and corporate loans, is getting elongated,” Das said.
Das also pointed out that certain NBFCs-MFIs appear to be enjoying relatively higher net interest margins. “It is indeed for micro finance lenders to ensure that the flexibility provided to them in setting interest rates is used judiciously. They are expected to ensure that interest rates are transparent and not usurious,” he said.
Banks too were warned of their exposure to NBFCs, who regularly borrow from banks. “Though the banks are well capitalised, they must constantly evaluate their exposure to NBFCs and the exposure of individual NBFCs to multiple banks. The NBFCs on their part should focus on broad basing their funding sources and reducing overdependence on bank funding,” he added.
‘Re-test your analytics, algorithms’
Lending institutions have been adopting digitalization at a rapid pace. They have not only eased access, increased reach of banking services but also helped institutions bring down operational costs.
Here too, Das sounded a word of caution, especially with regards to model-based lending through analytics. They must not rely solely on pre-set algorithms as assumptions based on which the models operate, he observed and suggested they’re calibrated from time to time with fresh information.
“It is necessary to be watchful of any undue risk build up in the system due to information gaps in these models, which may cause dilution of underwriting standards,” Das said.
SEE ALSO
The dark truth behind RBI’s crackdown on easy personal loans
RBI tightens norms on personal loans for banks, NBFCs