RBI actions on unsecured lending averts potential crisis: Governor

The Reserve Bank's endeavour is to smell a crisis early and act on it, Governor Shaktikanta Das said on Thursday, stating that not taking any action on unsecured lending front would have created "bigger problems".

The November 2023 action to curb growth in the riskier unsecured lending has had the desired impact as the growth in such portfolios slowed down, Das said while addressing an international conference on financial resilience at the RBI's College of Supervisors here.

Das said restrictions on unsecured lending were the result of a view that there could be a potential problem in the credit market because of growth in unsecured lending.

Also read/watch - Restrictions on JM Financial: SEBI confirms ban on managing public debt issues until 2025

The overall headline parameters were looking good, but there was "clear evidence" of dilution of underwriting standards, lack of proper appraisals and a mentality to join the bandwagon for driving up the unsecured lending among some lenders, he added.

"We thought if left unattended, these vulnerabilities can become a bigger problem. So, we thought it is better to act in advance and slow down the credit growth," Das said.

He expressed satisfaction that the RBI's action has had the desired impact, as the growth in unsecured lending has indeed slowed down.

Das said the growth in credit card portfolios has slowed down to 23 per cent from 30 per cent before the Reserve Bank of India (RBI) action, while growth in bank lending to Non-Banking Finance Companies (NBFC) has slowed to 18 per cent from the earlier 29 per cent.

It can be noted that on November 16 last year, the RBI increased risk weights on unsecured lending and exposure to NBFCs, which will make banks set aside larger amounts of capital on such assets.