The Reserve Bank of India Governor Shaktikanta Das has called for a meeting with the chiefs of public sector banks and select private sector banks on November 16 to take stock of the sustainability of the robust credit growth, and gauge if there are any risks lurking in banks’ loan portfolio in the backdrop of rising interest rates.
The RBI will also seek details on slow growth in deposits and asset quality of retail and MSME loans.
This comes even as all scheduled banks have logged a double-digit credit growth of 17.68 per cent year-on-year (yoy) as on October 21, 2022, per RBI data. This meeting assumes significance as it comes in the run-up to the forthcoming meeting of the Monetary Policy Committee (MPC), which is scheduled to meet from December 5 - 7.
Credit demand has been broad-based -- retail, industry, MSME (micro, small and medium enterprise), and agriculture and allied activities, according to bankers.
“The pick-up in bank credit growth was led by the term loans category. With economic activity gaining momentum, growth in bank credit for working capital has also caught up in recent months reflecting an optimistic outlook for demand conditions,” according to an article in RBI’s latest monthly bulletin.
Bankers say the RBI wants feedback on whether the current level of credit growth can be sustained. Further, it will gauge if there are any risks lurking in the banks’ loan portfolio, especially retail and MSME loans, in the backdrop of rising interest rates.
Even as credit growth has gathered steam, deposit growth has not kept pace with it. Banks’ have clocked single digit deposit growth of 9.22 per cent year-on-year (yoy) as on October 21, 2022.
Given that incremental credit and deposit growth are not moving in lockstep, the central bank will seek details of interest rate transmission and asset-liability mismatches.
Tech investments and DBU
With banks taking to digital innovations, including digital lending, in a big way, and the RBI commencing pilot for central bank digital currency (wholesale segment), the central bank is expected to check the adequacy of their investments in IT infrastructure, technology adoption and upgrading of legacy IT systems.
The functioning of the 75 Digital Banking Units (DBUs), which are spread across 75 districts and have been operational for nearly a month now, will come into sharp focus at the meeting.
DBUs, which have been set up by banks to further the cause of financial inclusion, are brick-and-mortar outlets providing a variety of digital banking facilities such as opening savings accounts, balance-check, transfer of funds, investment in fixed deposits, loan applications, stop-payment instructions for cheques issued, applying for credit/debit cards, pay taxes, pay bills, make nominations, among others.