While continuing to pause repo rates in its monetary policy review, RBI raised the GDP outlook for FY24 to 7 per cent and retained the inflation projections at 5.4 per cent. The policy seeks to ensure that inflation progressively aligns with the target while supporting growth.
The RBI has also identified the period 2020-23 as one of ‘Great Volatility’, indicating that inadequate credit risk management could pose formidable risks. The policy review has hinted that financial intermediaries should focus on improved risk management systems to meet heightened risks.
In this context, it will be pertinent to recall the saga of 2011-15 when bank credit expanded fast. It is then that the term ‘irrational exuberance’ entered the lexicon of bank lending. Some institutions adopted the loan restructuring strategy to ‘extend and pretend’. It led to RBI imposing an Asset Quality Review (AQR) in September 2015. As a result, the gross non-performing assets (GNPAs) of banks increased steeply to 11.5 per cent.
Lingering risks
The risks experienced during 2011-16 when seen with the present bias in credit expansion by some financial intermediaries towards risky loans, affirms that the RBI is right in…
