Banks should resist the temptation to lend to a sunrise sector following a herd mentality, S S Mundra, RBI Deputy Governor, has said.
Concentration risk can hurt the banks badly as has been the case in the past in lending to steel, mining, gems and jewellery and infrastructure sectors, Mundra said at an Assocham event in the capital on Monday.
Exposure concentration in one sector in a geographical area (eg exposure to sugar mills in UP) also suffers from political risks, Mundra said.
Mundra also advised bankers not to outsource their responsibility of credit appraisal to any third party.
"Lending is the most critical of banks’ functions and that cannot be outsourced," Mundra said.
He also noted that the computation of base rate by banks has not been found to be "very scientific and transparent".