RBI urges banks and NBFCs to monitor personal loan disbursements

Reserve Bank of India (RBI) Governor Shaktikanta Das has expressed concerns about the rapid growth in certain segments of personal loans during the recent bi-monthly monetary policy review on Friday, October 6. Although the RBI is uneasy about the increasing trend in unsecured personal loans, it has not introduced any immediate measures to curtail such lending.

Governor Das emphasized the importance for banks and non-banking financial companies (NBFCs) to bolster their internal mechanisms to proactively manage and mitigate potential risks.

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While overall credit expansion remains robust, there is a noticeable surge in specific components of personal loans, prompting the RBI to closely monitor these developments for any emerging stress within the financial sector.

Comments by Governor Shaktikanta Das while announcing the bi-monthly monetary policy review are just an advisory and the central bank is not announcing any macroprudential measures at this point of time, Deputy Governor J Swaminathan said.

"We would expect, as the first layer of defence, the banks, NBFCs and fintechs, to take appropriate internal controls," he said, warning that the RBI will "examine" the aspect if it does not see action on it.

Growth of unsecured retail credit

Swaminathan explained that in the last two years, the unsecured retail credit has grown by 23 per cent as against an overall credit growth of 12-14 per cent in the system, making it an "outlier" segment, which immediately prompts the regulator to flag the issue.