Business Standard

RBI widens supervisio­n of exuberance in retail lending

- REUTERS Mumbai, 15 March

The Reserve Bank of India (RBI) is stepping up its fight against “exuberance” in retail lending, targeting new areas including mortgage-linked “top-up” loans, on concern about rising risks to the financial system, a dozen sources said.

The RBI is tightening its supervisio­n of the industry and nudging individual lenders to rein in credit in areas where it sees increased risks, although it has not taken any formal enforcemen­t action, the sources with direct knowledge of the process told Reuters.

The RBI has taken a string of measures over the past six months to rein in some retail lending by banks and nonbank financial firms, and publicly warned them against "all forms of exuberance".

But the new scrutiny, essentiall­y a shot across the bow for financial firms, marks a change for the central bank, which as recently as September said India's credit expansion did not point to building systemic stress.

“The RBI is following a four-step approach on supervisio­n now - monitor, warn, penalise and then act,” one source said. “They want to give entities a chance to course-correct based on public or specific warnings, but also act when warranted.”

The RBI typically uses moral suasion — speeches, calls to bank executives, individual meetings — as initial steps to prod banks, before considerin­g more assertive enforcemen­t.

In addition to the mortgage top-ups, the RBI is cautioning lenders about the risks of algorithm-based credit models and nudging a few institutio­ns to slow co-lending, the sources said.

The sources, including people familiar with central bank thinking, bankers, and others in the industry, asked not to be named given the sensitivit­y of the matter. The RBI did not respond to an email seeking comment.

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