The Aryavarth Express
Agency (Mumbai): According to a dozen sources with direct knowledge of the process, the Reserve Bank of India (RBI) is widening its scrutiny of the financial industry, targeting potential areas of “exuberance” in retail lending.
The central bank is tightening its supervision of banks and non-banking financial firms, and nudging them to rein in credit in areas where it sees increased risks, though it has not taken any formal enforcement action yet.
The new scrutiny marks a change for the RBI, which as recently as September said India’s credit expansion did not point to building systemic stress. However, the central bank now appears to be adopting a “four-step approach” – monitor, warn, penalize and then act.
In addition to mortgage top-up loans, the RBI is also cautioning lenders about the risks of algorithm-based credit models and nudging a few institutions to slow co-lending arrangements.
The sources say the RBI’s aim is to ensure risks to the financial system do not escalate amid global economic uncertainty. The central bank has already taken measures over the past six months to rein in some retail lending by banks and non-bank financial firms.
According to the sources, the RBI is using its typical approach of moral suasion, such as speeches, calls to bank executives and individual meetings, as initial steps to prod banks, before considering more assertive enforcement.
The central bank’s actions come as India’s banks have been reporting credit growth of around 16% annually, more than double the economy’s forecast growth of 7.6% for the current fiscal year.
