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The Reserve of India governor has flagged concerns over banks and non-banking finance companies not following prudential norms on top-up home loans and directed them to review their practices and take remedial action. He has also again cited the high growth in personal loans.
In his monetary policy review, Shaktikanta Das pointed to the brisk growth in home equity or top-up loans in the housing segment and said, “It is noticed that the regulatory prescription relating to loan-to-value ratio, risk weights, and monitoring of end use of funds are not being strictly adhered to by certain entities.”
“Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would therefore be well advised to review such practices and take remedial action,” he said.
In a follow-up to the pre-emptive regulatory measures taken last year with respect to certain risky loan segments, Das said that certain segments of personal loans continued to witness high growth.
“Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from macro-prudential point of view. It calls for careful assessment and calibration of underwriting standards, as may be required, as well as post-sanction monitoring of such loans,” he said.
Regarding the slow growth rate of bank deposits compared to loans, Das exhorted banks to focus on mobilising household savings through innovative products and services. “.....It is observed that alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth.” As a result, banks were taking recourse to short-term non-retail deposits, which could expose the banking system to structural liquidity issues.
Das also advised banks to beef up their cybersecurity and IT systems in view of the global outage last month caused by a technical glitch in software that affected businesses across countries, including India.
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