 "Nirmala Sitharaman")
Union Finance Minister Nirmala Sitharaman on Thursday supported the Reserve Bank of India’s (RBI’s) move to curb exuberance in lending, saying non-banking financial companies (NBFCs) and small finance banks needed to remain cautious.
Speaking at a Digital Acceleration & Transformation Expo event, she cautioned that NBFCs and small finance banks should not go too far in their enthusiasm. “The RBI is quite conscious of where the thin line actually lies. Enthusiasm is good but sometimes it becomes a bit too far for people to digest. So as a measure of caution the RBI has also alerted small finance banks and NBFCs to be careful that they don't go too far, too soon and face any downside risks later,” she said.
Following a surge in unsecured loans, such as personal loans and credit card spent, the RBI on November 16 tightened the norms for unsecured consumer credit, asking banks and NBFCs to assign higher risk weighting. The RBI increased the risk weighting on unsecured consumer loans and on credit cards by 25 percentage points to 125-150 per cent. This had analysts estimating the capital cost, on banks alone, going up by at least Rs 84,000 crore.
RBI Governor Shaktikanta Das on Wednesday said the central bank’s tougher stance on unsecured loans was a “pre-emptive” move aimed at ensuring financial stability. Higher risk weighting means that lenders need to set aside more funds as a safety net for consumer loans, which could make such credit more expensive. It restricts banks’ lending capacity as they have to set aside more funds for solvency.
The finance minister said the government had asked the Securities and Exchange Board of India (Sebi) to seek inputs from stakeholders while drafting norms and rework them if the proposals are perceived to be too restrictive. “Even at the draft stage, take their inputs and go back to the drawing board if there is anything else that has to be tweaked or redrawn, keeping these stakeholders’ interests in mind,” she said.
Sitharaman said the public-sector banks needed to be a lot more efficient in wanting to get the deposits coming to the banking sector. “Get deposits, give them good interest rates, but at the same time be possibly conscious that India’s growth depends on bank lending comfortably to people who want to set up businesses and grow in that area. Retail investors are now attracted to the stock market which is very good. They don’t even look for mutual funds. Even the IPOs (initial public offerings) of yesterday have really been oversubscribed within a day of their announcement on the back of the retail investors,” she added.
On keeping the digital transactions free through government subsidy, Sitharaman said while she can’t predict about future budgets, the intention of the government is to keep that continuing till such a time when the bulk of those who need to have this advantage given to them get it.
Highlighting the key role to be played by account aggregators in the coming days, Sitharaman sought to clarify that they facilitate exchange of financial data but don’t own it. “Once you want the benefit of a better banking facility, your details are passed through (by the account aggregator to) that particular bank which has to receive. Initially, there were some apprehensions, possibly account aggregators are going to sit over a data dank. No, they can’t hold data,” she said.
