India central bank chief cautions lenders on high personal loan, weak deposit growth
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Indian banks continue to see high growth in certain segments of retail loans, the governor of the Reserve Bank of India said on Thursday, urging lenders to carefully monitor the quality of loans to avoid systemic risks.
The governor also urged banks to garner more deposits through innovative products and service offerings by capitalising on their vast branch networks.
"Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from macro-prudential point of view," Shaktikanta Das said while announcing the monetary policy decision in Mumbai.
This calls for careful assessment and calibration of underwriting standards, as well as post-sanction monitoring of such loans, Das said.
He reiterated that "alternative investment avenues" were becoming more attractive to retail customers and that banks were facing challenges with bank deposits trailing loan growth.
Governor Das also said that so-called 'top up' housing loans, which have been growing at a brisk pace, have caught the RBI's attention.
Moreover, certain entities were not strictly meeting norms relating to loan-to-value ratio, risk weights and monitoring end use of funds, Das said. He did not name the entities.
Retail loans by banks in India grew nearly 26% on-year in June 2024, outpacing overall bank credit growth of 17.4%, the latest central bank data showed.
Loans against gold jewellery grew 30.5%, while credit card outstanding and unsecured personal loans rose 23.3% and 15.2%, respectively, in June.
The RBI has repeatedly warned lenders against "all forms of exuberance" due to worries about the rising risks to the financial system and had, in November, asked banks to set aside more capital for personal loans.
Reuters had reported in March that the central bank was stepping up its fight against "exuberance" in retail lending, targeting new areas including mortgage-linked 'top up' loans.
Regulatory breaches on such loans may lead to funds being deployed in unproductive segments or for speculative purposes, Das said, urging lenders to take remedial action.
