With the aim of bolstering the financial sector’s resilience, the Reserve Bank of India (RBI) on November 16 enforced a exposure for commercial banks and non-banking finance companies (NBFCs). This adjustment applies to both existing and new credit, specifically targeting personal loans while excluding housing loans, education loans, vehicle loans, and loans secured by gold.
Despite the routine nature of such policy adjustments, the markets displayed an unwarranted tendency to overanalyse and overreact. During the October monetary policy, RBI Governor Shaktikanta Das had of the escalating growth in specific components of consumer credit.
The subsequent augmentation in risk weights is a calculated response, acting as a shield against the imprudent surge in consumer credit. The regulator’s prudent concern extends to the surge in unsecured lending and consumption-based loans, addressing potential systemic risks associated with an unchecked proliferation of unsecured loans. Elevated levels of unsecured lending pose a heightened risk of default, potentially leading to repercussions on Non-Performing Assets (NPAs) for banks and NBFCs. The regulator’s vigilance reflects a commitment to…
