MUMBAI: RBI has expressed concern over banks and finance firms setting excessive ceilings for unsecured loans, stating that it expects their boards to train prudence.
Noting that there was some moderation in unsecured lending after RBI tightened norms for this phase, it mentioned, “While specific limits have been prescribed for unsecured lending by urban co-operative banks (UCBs), the boards of commercial banks and NBFCs have discretion in fixing limits on unsecured exposures.
However, some entities have set very high ceilings, which need to be continuously monitored.”
Going ahead, RBI expects the boards of regulated entities to train prudence and keep away from exuberance in the curiosity of each their very own monetary well being in addition to systemic monetary stabilityit added. In addition to unsecured loans, RBI has additionally raised issues about high-up loans on gold loans, stating they may current comparable dangers to unsecured loans. RBI famous that these loans “could lead to a buildup of risks, especially during times when collateral for such loans becomes volatile or faces cyclical downturns.”
In mild of those issues, RBI had instructed that every one high-up loans prolonged by regulated entities (REs) towards movable property – that are inherently depreciating in nature – needs to be handled as unsecured loans for credit score appraisal, prudential limits, and publicity functions.
Another space of concern for RBI is personal credit score. Acknowledging the development of shifting from formal lenders to non-public credit score, RBI mentioned, “A closer look is, however, warranted at the interlinkages between regulated entities, including banks and NBFCs, and such firms. Strong interrelationships between them could give rise to systemic concerns. , along with the possibility of regulatory arbitrage to circumvent regulations.”
