“In such good times, banks and NBFCs need to reflect and introspect as to where the potential risks may arise from. Now is the time to further strengthen their risk management practices and to face the situation Create additional buffer in case the business cycle turns adverse,” Das said.
The governor’s statement comes in the wake of measures taken by the central bank to curb the growth of unsecured consumer loans through increase in risk weights.
“These measures are pre-emptive in nature. They are calibrated and targeted. It may be relevant to note that key growth drivers like housing, vehicles and credit to the MSME sector were kept out of these measures,” Das said. Is.”
coined by former US Fed According to Chairman Alan Greenspan in the 90s, “irrational exuberance” serves as a warning term associated with asset price bubbles.
Das talked about how the RBI’s inflation priorities changed in April 2022 and how the central bank will now have to focus on multiple factors to achieve its target. He was addressing a gathering of bankers and businessmen at the FIBAC 2023 conference organized by FICCI and the Indian Banks Association in Mumbai on Wednesday.
The Governor reiterated the similarity between RBI’s focus on inflation and the great warrior Arjuna. Das explained that in the beginning, RBI’s focus was like that of young Arjun, who refined his skills by focusing only on the eye of a bird sitting on a tree. However, like Arjun Upon maturing, he had to face the Swayamvara challenge, where he had to aim at a moving fish by seeing its reflection in the eye of a moving fish in a bowl of water. Drawing a parallel, Das said, “Similarly, the RBI sticks to its focus on the target, but we must consider many other influential factors in determining the RBI’s decisions.”
Das also cautioned against contagion risks arising from bank lending to finance companies. “In the financial system, there is a need to pay close attention to the growing interconnectedness between banks and non-banks. NBFCs are large net borrowers of funds from the financial system, their exposure to banks is highest. Banks are also one of the major customers Debentures and commercial papers issued by NBFCs,” Das said.
The ratio of bank credit to NBFCs in total bank credit increased from 7.8% in September 2021 to 9.4% in September 2023. With limited corporate loan demand, banks increased personal loan share from 28% to 32% during the same period.
“Credit growth is accelerating in the current period, but banks and NBFCs are taking adequate precautions to ensure that credit growth remains sustainable at the overall, regional and sub-regional levels and avoid all forms of exuberance,” Das said. Be saved.”
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