The Reserve Bank of India (RBI) kept repo rates intact on the back of strong growth trajectory. While he mentioned that the overall health of India’s financial sector remains stable, the Govrnor highlighted some areas that needs focus and careful monitoring –
1. Alternative investment avenues are becoming more attractive: The Governor took note of the fact that how alternative investment avnues are becoming rekatively attractive to retail customers in comparison to bank deposits. As a result of this the banks are facing challenges on the funding front with deposits are trailing loan growth. The direct consequence of this is that “banks are taking recourse in short-term non-retail deposits and other instruments to meet incremental credit demand. This may expose the banking sector to structural liquidity issues.” He urged “Banks need to focus on mobilisation of household financial savings.”
2. Monitoring excess leverage through personal loans: The second point highlighted by the RBI Governor was related to retail loans, especially in the housing sector, used for consumption purpose. He reiterated the need for carefully monitoring these. He added that the, “sectors in which pre-emptive regulatory measures were announced by RBI in last November have shown moderation in credit growth. Certain segments of personal loans continue to clock high growth.” Need to constantly reemphasise need for monitoring, he said.
3. Adhering to regulatory norms and monitoring of end use of Housing loans: Housing loans have been growing at a brisk pace, the Governor said. Banks and NBFCs have also been offering top-up loans. “Regulatory prescriptions with regards to loan to value, risk weights and end use of funds are not being strictly adhered to by certain entities. Such practices may lead to loan funds being deployed to speculative activity or unproductive sectors,” he added. The Governor reiterated that “Banks and NBFCs are therefore advised to review such practices and take necessary remedial action.”
4. Fast-growing dependence on big tech and third-party technology solution providers: The Governor said that it is necessary that banks and financial institution build appropriate risk management framework in their IT, cyber security and third party outsourcing arrangements to maintain operating resilience.