RBI Governor Shaktikanta Das Advise Banks To Remain Cautious Regarding Unsecured Loans

Das pointed to a strong recovery in car sales in October as a positive sign, although he noted that sales of fast-moving consumer goods (FMCG) in urban areas remained subdued

While inflation risks are rising, the positives still outweigh the negatives in India's economy, with October's inflation data expected to be "much higher" than September’s, according to Reserve Bank of India (RBI) Governor Shaktikanta Das.

Speaking at the Business Standard Banking, Financial Services, and Insurance (BFSI) summit in Mumbai today, Das expressed confidence in the overall health of the Indian economy despite some mixed signals in recent data. "I would not rush to declare that the economy is slowing down. The data coming in is mixed, but the positives outweigh the negatives. By and large, underlying economic activity remains strong,” he said.

He pointed to a strong recovery in car sales in October as a positive sign, although he noted that sales of fast-moving consumer goods (FMCG) in urban areas remained subdued.

Das also reaffirmed the stability of the non-bank financial company (NBFC) sector, clarifying that recent regulatory actions against certain NBFCs were corrective rather than punitive and were intended to protect consumers’ interests.

“There are about 9,400 NBFCs; action has been taken against four. RBI action is very calibrated and selective… it is good for the individual institution’s sustainability, for the financial sector, and, above all, for the consumer. All actions are taken in the consumer’s interest,” Das explained.

Furthermore, Das advised banks to exercise caution regarding unsecured loans, although he stressed that there is no evidence suggesting these loans are being diverted to stock markets.

“Banks need to assess the end-use of unsecured loans. Loans given for housing or consumer durables, etc., can be monitored, but open-ended unsecured loans are difficult to track. We are closely watching that segment,” he said.

The Reserve Bank of India (RBI) closely monitors the credit-deposit (CD) ratio, although it is not a rigidly enforced metric. The regulator regularly reviews underwriting standards at both banks and non-bank financial companies (NBFCs) while also assessing the liability side of each banking entity.

“Every banker understands that the CD ratio cannot be excessively skewed,” he said.  

He noted that the CD ratio at the system level is currently around 80 per cent, a significant improvement from just a few months ago. He added that there are some outliers, but overall, there is progress.

The RBI also monitors the balance between liabilities and assets to ensure sustainable credit growth. "When we observe a mismatch developing, we engage with the banking entity. All banks are responding positively," Das said.

On the topic of global developments, particularly the ongoing US presidential election results, Das reassured that India need not be concerned about the outcome.

“Overall, India-US relations have become much stronger. There is a strategic partnership between the two countries that will continue regardless of who wins. The Indian economy and financial sector are well-placed and resilient enough to handle any external spillovers," he opined.