The Reserve Bank of India is exhibiting serious commitment to boost governance and transparency in the Indian financial sector, ratings agency, S&P Global Ratings said on Tuesday. The global ratings firm lauded the efforts of the Indian banking regulator in helping improve governance in the financial industry in the country.
The agency said that the latest measures by the RBI will help restrict lenders’ over-exuberance, boost the compliance culture in the country, and also help protect consumers. However, it noted that these initiatives will also lead to an increase in capital costs for institutions, reported PTI.
Notably, the regulator has recently taken measures to limit IIFL Finance Ltd and JM Financial Products Ltd from distributing gold loans and loans against shares, respectively. The regulatory body also barred Paytm Payments Bank Ltd (PPBL) from taking on new customers. Earlier in December 2020, S&P noted, that the RBI also suspended HDFC Bank from sourcing new credit card customers after a series of technological outages.
Commenting further, S&P Global Credit Analyst, Geeta Chugh, said, “India's regulator has underscored its commitment to strengthening the financial sector. But the increased regulatory risk could impede growth and raise the cost of capital for financial institutions.”
She added that governance and transparency have been the major weaknesses of the Indian financial sector. However, the new initiatives from the RBI have helped create a stronger and transparent financial system, she said.
S&P in its analysis noted, “The RBI has decided to publicly disclose the key issues that lead to suspensions or other strict actions against concerned entities. The central bank has also become more vocal in calling out conduct that it deems detrimental to the interests of customers and investors. It has cited perfunctory credit underwriting, overvaluation of collateral, and governance issues in select financial sector companies.”
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