'Growth should never come at the expense of taking on unacceptable risks...': RBI Governor Shaktikanta Das

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, said that the central bank’s timely action has resulted in moderation of vulnerabilities in unsecured loans. 

While speaking at the Second Global Conference on Financial Resilience organised by the College of Supervisors on June 20, the RBI Governor said, “Our timely action resulted in slowing down growth of unsecured loans. If left unattended, vulnerabilities on unsecured loans could have become a bigger problem.” 

The RBI Governor also underscored the importance of maintaining robust credit assessment processes and risk management frameworks. He called on banks and non-banking financial companies (NBFCs) to strengthen their oversight mechanisms to mitigate risks associated with unsecured lending.  

“Pursuit of business growth is important, but it should never come at the expense of taking on unacceptable risks. Robust risk mitigants are essential for ensuring long-term success and resilience of a regulated entity as well as the overall financial system,” Das said. 

Unsecured loans, which are loans not backed by collateral, have seen a surge in demand. This increase has raised concerns within the RBI about the potential for higher default rates and the overall impact on the financial system.

Last year, the central bank increased the risk weight on consumer loans advanced by commercial banks and non-banking finance companies by 25 percentage points. The consumer credit of banks and NBFCs attracts a risk weight of 100 percent, which has been revised to 125 percent. 

On supervisors, the governor said they should be ahead of the build-up of a crisis and act on time. He further noted that RBI has a unique advantage and it is uniquely placed to use various arms of the central bank and to deal with any crisis. 

“It is our endeavour to smell a crisis. Supervision has become a very complex task. We need to realise it is a complex world and our supervisory methods should be our best endeavour to remain sync with time. Not only in sync with times and to see stress before it builds up,” Das said. 

On emerging new technologies, the governor said AI and ML can enhance predictive analysis and enable banks and non-banking financial companies (NBFCs) to identify potential risks and trends more accurately. 

He also pointed out that the central bank has no intention to constantly make regulatory changes unless required. Das also noted that the Indian financial system is now in much better position to what it was during the Covid-19 pandemic. 

In his address, he said, "India’s domestic financial system is now in a much stronger position, characterised by robust capital adequacy, low levels of nonperforming assets, and healthy profitability of banks and NBFCs."

"There is, however, no room for complacency. We must keep constant vigil and continue to take proactive measures to sustain this progress," he further added.