Mumbai: The Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday expressed concern about alternative investment avenues becoming more attractive to retail customers which could pose structural issues for banks. Das said that this trend is resulting in banks facing challenges on the funding front, with deposits trailing loan growth.
The RBI governor also highlighted potential risks in certain lending segments such as the rapid growth in home equity loans (top-up home loans) without following regulatory prescriptions, along with the growth in certain segments of personal loans. Das said the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being strictly adhered to by certain entities in this regard.
Banks and NBFCs have also been offering top-up loans on other collateralized loans like gold loans.
That said, the governor maintained that the financial sector remains sound and that the central bank’s past regulatory measures to clamp down on non-banking financial companies and unsecured lending are also yielding results.
“With increased activity levels in the top-up loan segment, RBI’s caution to lenders on caliberating underwriting norms and closer monitoring of the end use is a step in the right direction. Such loans not only raises concerns on overleveraging but it also raises suspicion on the quality of such borrowers as they may alsouse such top-up loans to service the existing loans,” said Anil Gupta Senior Vice Presidentc Co Group Head – Financial Sector Ratings, ICRA Ltd