RBI governor stresses prudent lending and financial stability

MUMBAI – In a recent address at the FIBAC annual event, Reserve Bank of India (RBI) Governor Shaktikanta Das highlighted the central bank’s measures to safeguard key economic sectors and maintain financial stability. Das emphasized the importance of regular stress testing for banks despite the absence of immediate financial distress signals, acknowledging the robustness of the Indian rupee amid global financial challenges.

Governor Das pointed out the proactive steps taken by the RBI to shield vital sectors such as housing, vehicles, and small businesses from stringent unsecured lending rules. These measures aim to support economic stability and promote sustained growth. He praised Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) for their responsible approach to rate-setting flexibility, which has resulted in increased margins.

In addition to these protective steps, Das issued a cautionary note regarding unsustainable credit growth and lending exuberance. This warning comes on the heels of stricter capital requirements implemented by the RBI on personal loans and transactions involving NBFCs. The objective is to mitigate risks associated with small-ticket consumer credit. The governor urged financial institutions to exercise prudence in algorithm-based lending and encouraged diversification of funding sources to strengthen the resilience of the financial system against risks of interconnectedness.

While new regulations have been introduced, RBI has excluded home, vehicle, and gold loans from these tighter norms. However, microfinance institutions are reminded of their duty to ensure that interest rates remain affordable for consumers who are economically vulnerable.

Das also underscored the need for agricultural marketing reforms as a critical component to maintaining steady economic growth, indicating that a multifaceted approach is necessary for India’s overall economic health.

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