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Sustainable Banking Practices at the Forefront
Reserve Bank of India (RBI) Governor Shaktikanta Das underscored the recent tightening of norms on unsecured lending as a “preemptive and targeted move” in the overall interest of sustainability. Addressing the annual FIBAC 2023 Conference, Das highlighted the RBI’s commitment to strengthening regulations and supervision of banks, NBFCs, and other regulated entities.
Macro-Prudential Measures for Sustainability
Last week, the RBI implemented macro-prudential measures, increasing the risk weight for consumer credit exposure to curb the rapid growth in unsecured consumer lending. Bajaj Finance Limited was also restricted from sanctioning loans under specific lending products. Shaktikanta Das reiterated that these measures are preemptive and targeted, aligning with the broader goal of sustainability.
Exclusions for Strategic Growth
Shaktikanta Das clarified that certain sectors, such as loans for housing, vehicle purchases, and those availed by small businesses, were excluded due to their strategic growth advantages. The focus remains on reinforcing governance, risk management, and robust lending practices.
Proactive Supervision and Stress Testing
The RBI continues to adopt a proactive and forward-looking supervisory approach. Das emphasized the importance of stress testing for banks, NBFCs, and financial entities. Additionally, he urged companies in the real sector to conduct stress tests for their businesses and balance sheets.
Vulnerability to Food-Price Shocks
Addressing another concern, Das highlighted India’s vulnerability to food-price shocks arising from extreme weather events and global factors. Despite recent moderation in prices, headline inflation remains susceptible to food price shocks. Das cautioned the Monetary Policy Committee (MPC) to maintain a disinflationary stance and remain vigilant against inflation sources.
Call for Watchfulness and Disinflationary Stance
Das emphasized the need for watchfulness regarding inflation and reiterated the RBI’s commitment to a disinflationary stance. He urged the MPC to stay vigilant against potential inflation sources, particularly in the context of recurring and overlapping food-price shocks.