The Reserve Bank of India governor Shaktikanta Das on Wednesday, (November 22) told both banks and non-banking financial companies (NBFCs) to strengthen risk management. He also told microfinance companies to reduce the profit margin.
The warning comes at a time when the amount of unsecured loans have growing fast, leading to an increase in risk weights and, therefore, higher lending rates to slow down the rising risks. "In good times like these, banks and NBFCs need to reflect and introspect as to where potential risks could possibly originate," he said speaking at a event hosted by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA).
The RBI on Thursday (November 16), raised risk weights on unsecured loans, specifically personal and credit card loans, from 100% to 125% (back to the pre-pandemic levels). Housing, education and vehicle loans as well as loans secured by gold and gold jewellery were exempt from the hike in risk weights.
The banking regulator also asked some lenders against charging high margins on loans especially from the vulnerable sections of the society.
Certain NBFC-MFIs (microfinance institutions) were observed with relatively higher net interest margins, he said.
In India, microfinance companies are allowed to charge a higher net interest margin, the difference between the lending rate and the deposit rate. For instance, the State Bank of India, the country's largest lender, gets an NIM of a little over 3%, there are some microfinance lenders charge as much as 17%. | Microfinance lenders | NIM |
|---|
| CREDAG | 13.1% |
| Spandana Sphoorty | 14.1% |
| ESAF SFB | 11.98% |
| Fusion MFI | 11.1% |
| Five Star | 17.68% |
Back to risks
While speaking about the growing risks, the RBI governor also told companies from over-reliance on algorithm-based lending. "All forms of exuberance must be avoided," he said.
The evolving digital technologies have led to the mushrooming of many fintech companies who find borrowers based on data, many of whom do not have a credit score, and these decisions are based on data and algorithms.
Top companies in this space include Incred, Lendingkart, and Capital Float, to name a few.
The number of loans given out by such fintech apps more than doubled to ₹92,848 crore, 129% growth in financial year ending March 2023, compared to a year earlier, according to a June 2023 report by Fintech Association for Consumer Empowerment.
(Edited by : Anshul)
First Published: Nov 22, 2023 2:43 PM IST
