CEA V Nageswaran Asks Finance Industry To Exercise Restraint, End Predatory Collection Practices

Speaking at an event, the academic turned CEA said regulations can only work to an extent to stop robberies, but crime can be curtailed only when the robber chooses to reform. 

Chief Economic Advisor V Anantha Nageswaran on Wednesday called upon the finance industry to exercise self-restraint and put an end to predatory practices, misselling of products, and data misuse, reported PTI. Speaking at an event, the academic turned CEA said regulations can only work to an extent to stop robberies, but crime can be curtailed only when the robber chooses to reform. 

"Misuse of data, misselling, predatory practices, etc have to be guarded against. Self-policing is the best policing. We've also seen even among established financial institutions concerns about the collection practices to those who borrow, and also those who are near to them," Nageswaran said while speaking at the Samvaad event here, reported the news agency. 

In the recent past, companies like Mahindra Finance have faced criticism for their loan collection strategies, particularly following an unfortunate incident where a woman lost her life when a tractor being repossessed by recovery agents caused her harm, noted the report. 

Nageswaran said that on Tuesday, he met the SEBI brass, and was told about offers made to grow money quickly on a small base through trading in the markets. Offers are made to turn Rs 5,000 into Rs 6,000 or even Rs 12,000 sometimes within a day. Such promises and expectations are unsustainable.

Given the access financial institutions have to so much data about an individual's habits, it is very important for companies to exercise "self-restraint", the CEA said, the report added. 

Nageswaran said that given access to data, and the low credit penetration where only a fifth of the population has a history of borrowing, financial institutions evolve a judgment to provide credit. This is essential because India is now waiting for another round of credit expansion, where the doubling or tripling of overall credit's share to GDP will be faster than the previous cycles. 

"If India has to achieve a sustained growth rate of more than 6 per cent per annum, we need a financial cycle that doesn't end within half a decade," he said. 

Listing out challenges faced on this front in the recent past. Whenever the country has witnessed a credit cycle, there is "overheating, excess lending, excess borrowing, non-performing assets, recapitalisation, and write-offs,” the CEA added. 

According to Nageswaran, the substantial growth experienced by India in the first decade of this century instilled a belief in many that it could become the next global growth engine and potentially replace China, which had held that position with a consistent annual growth rate of 9 per cent for three decades.

However, these expectations were not realised due to the impact of the 2008 global financial crisis and excessive lending practices. These circumstances necessitated corrections within the financial sector and required companies to address issues related to their corporate balance sheets, he added.