Shaktikanta Das, governor of Reserve Bank of India (RBI) on Wednesday, said the tougher stance taken by the central bank on unsecured loans earlier this month is a "preemptive" move in the interest of sustainability. Das, who was addressing an annual FIBAC event, said that the banking system continues to be resilient and there is no immediate cause of worry for the system.
"We have … recently announced a few macro prudential measures in the overall interest of sustainability. These measures are pre-emptive in nature, they are calibrated and targeted," Das said, adding that the lenders to be more cautious and spot any trend of risk building early.
The Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA) are jointly organising the FIBAC event. It can be noted that after asking lenders to be cautious, the RBI had increased risk weights on unsecured lending for both banks and non-banks earlier this month.
Das said the RBI has left out loans taken for vehicle and home buying, and also lending to small businesses because of the benefit to growth that such segments portend, and also added that the central bank does not see a possibility of stress building up in such segments. He asked lenders to strengthen their risk management practices and build additional buffers to face any situation if the business cycle turns adverse, and added that the RBI has significantly strengthened its regulation and supervision.
"While banks and NBFCs are showing good performance now, sustaining it requires concerted efforts. In good times like these, banks and NBFCs need to reflect and introspect as to where potential risks could possibly originate," the governor said. He also noted that lending entities will continue doing stress tests and in a departure from the past, also advised entities in the "real sector" to undertake similar efforts.
On the RBI's part, the central bank is undertaking efforts like on-site and off-site inspections, stress testing, vulnerability assessments, thematic studies and data-dump analysis, Das said, adding that these efforts are being undertaken as part of its efforts to be proactive and forward looking in supervisory approach. Banks and NBFCs also need to further strengthen their asset liability management, Das said, pointing out that the troubles in the US began because of an assumption that rates will be low for "eternity", which was completely wrong.