NEW DELHI: Banking sector regulator Reserve Bank of India (RBI) has said recent changes in the rules for unsecured loans have started showing results in terms of improved underwriting and internal risk practices. The RBI, though, made it clear that the move was not aimed at denying liquidity or loans to the needy. The issue of unsecured loans and recent regulatory changes hogged the limelight at the post-monitory policy press briefing of RBI on Friday.
Responding to media queries on the need for the move and its impact, RBI governor Shaktikanta Das said that these are precautionary measures which the regulator has taken, and its efforts have always been to act proactively before the bubble bursts.
“As part of our supervision, and close monitoring of banks and financial institutions, our endeavour is to always remain up to date. We have deepened our supervisory methods. Our endeavour is also to try to use the smell test. So, whenever we smell any stress building at any level – system level or individual entity level – we deal with it in an appropriate way,” said the governor.
The RBI in November increased the risk weight of unsecured personal loans from 100% to 125% for banks and NBFCs. For credit card loans, the risk weight has been increased from 125% to 150% in case of banks and from 100% to 125% for NBFCs.
The move has led to NBFCs and Fintech firms cutting their exposure on unsecured small ticket loans.
On whether the regulatory changes have started showing results, deputy governor Swaminathan Janakiraman, said that it is too early to pass a verdict on what sort of effect these measures are having. “But our initial interactions with the industry alludes that internal risk practices are getting better, underwriting is getting better, and any business models that are likely to throw up enhanced risk are curtailed,” said the deputy governor.
As per him, efforts were made over the past 3-4 months by sensitising the players to put adequate internal measures to ensure that the risk build-up is avoided, but since the market was not responding to the warnings it was necessary to take certain measures.
The deputy governor said that they want the regulated entities to conduct their businesses in a way that avoidable risk build-ups are mitigated.