RBI is closely monitoring certain components of personal loans: Das
The Indian banking system continues to demonstrate resilience, buoyed by improved asset quality, stable credit growth, and strong earnings growth. Latest data available as of June 2023 also reveals that the financial metrics of non-banking financial companies mirror those of the banking sector.
However, it is worth noting that certain segments within personal loans are experiencing rapid growth, a trend that has drawn the close attention of the Reserve Bank. RBI Governor Shaktikanta Das, in announcing the Monetary Policy Committee’s decision on Friday, emphasized the need for vigilance. He urged both banks and non-banking financial companies to fortify their internal monitoring systems, address any emerging risks, and implement appropriate safeguards in their own interests. In this context, robust risk management and enhanced underwriting standards are paramount.
Provisional data as of June 2023 indicate that gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios declined to a decadal low of 3.6% and 0.9%, respectively. Capital adequacy ratio (CRAR) of SCBs increased to 16.9% in June 2023 from 16.2% in June 2022. The slippage ratio, a primary indicator for standard assets turning NPAs during the quarter, dipped to 1.6%, the lowest after the COVID-19 outbreak. The return on asset (RoA) of SCBs increased to 1.3% as of June 2023 from 0.9% in June 2022, while the net interest margin (NIM) of SCBs improved to 3.8% from 3.3% over the same period.
Das explained: “All key indicators of asset quality of scheduled commercial banks (SCBs) continue to improve on a sustained basis. SCBs have enough high-quality liquid assets as the liquidity coverage ratio (LCR) of SCBs stood at 141.9% as at the end of June 2023. We remain confident of meeting our external financing requirements comfortably. The policy mix that we have pursued during the recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability.”
It is imperative that banks assess their actual liquidity requirements over the reserve maintenance cycle and bid accordingly in the auctions under main 14-day VRRR operations. Das advised: “It is desirable that banks having surplus funds explore lending opportunities in the inter-bank call market rather than passively parking funds in the SDF at relatively less attractive rates. The release of the remaining impounded I-CRR funds tomorrow along with pickup in government spending are expected to ease liquidity conditions.”
In contrast to global trends, domestic economic activity exhibits resilience on the back of strong domestic demand. Festival time increase in currency demand may, of course, act as a counterbalancing factor. Das further assured: “It is a turning pitch and we will play our shots carefully. Going forward, while remaining nimble, we may have to consider OMO-sales (Open Market Operation sales) to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions. Lessons from the past one and a half decades and from living through the global financial crisis and the taper tantrum tell us that risks and vulnerabilities can grow even in good times. All stakeholders in the economy, be it lenders, corporates, businesses – small and big – and even policymakers should continue to reinforce their buffers and fundamentals in the fast- changing world that we live in.”
Additional Measures
With a view to strengthen the extant regulatory framework governing project finance and to harmonise the instructions across all regulated entities, the extant prudential norms for projects under implementation have been reviewed. Das said: “A comprehensive regulatory framework applicable for all regulated entities is now proposed to be issued. Detailed draft guidelines will be released for public comments.”
Credit Concentration Norms
At present, under the Large Exposures Framework, NBFCs in the Upper Layer are permitted to use Credit Risk Mitigation (CRM) instruments for reducing their exposures to a counterparty. Das further said: “With a view to harmonise the credit concentration norms among NBFCs, it has been decided to also permit NBFCs in the Middle and Base Layers to use CRM instruments for reducing their counterparty exposure under the credit concentration norms.”
