RBI Curtails Consumption Loans, Unsecured Credit: DG Swaminathan J

Mumbai, Dec 8 (PTI) Deputy Governor Swaminathan J on Friday said the Reserve Bank wants the lenders to "curtail" consumption loans or unsecured credit, where the end-use is undefined.

In the comments, which come within weeks of the RBI raising risk weights on unsecured lending to protect financial stability, Swaminathan clarified that the intent of the RBI is not to deny or ration credit.

Replying to a question on whether fears of unsecured loans being used to punt on the equity market led the RBI to put some restrictions on unsecured lending, Governor Shaktikanta Das said the question is "very hypothetical" but admitted that there have been some anecdotal write-ups.

"… What we would like to curtail and expect the lending institutions to provide for more by way of additional risk weight, is some of those consumption-led segments or unsecured credit which do not have a defined end use," Swaminathan told reporters.

He said, if there has been a recalibration of the growth number in such credit which suggests tweaks in business models, it should be seen as being illustrative of the regulations having its intended effect.

Deputy Governor M Rajeshwar Rao said the move to increase risk weights for unsecured loans is a prudential measure to curb growth or moderate credit growth to certain sectors.

It does not tantamount to turning off the tap and if anything, only the pressure has been reduced, Rao added.

Announcing the policy earlier in the day, Das had said that the measures to increase the risk weights were “pre-emptive” in nature, addressing potential risks and preserving the resilience of the financial sector.

"We do not wait for the house to catch fire and then act. Prudence at all times should be the guiding philosophy, both for the regulators and the regulated entities," Das had said.

Later, Das also told reporters that the RBI has deepened its supervision methods, which also includes the "smell test" to check buildup of stress.

He added that the Indian financial sector continues to be robust, and both banks and shadow banks are well capitalized.