RBI Deputy Governor Rao Stresses on Vigilance to Mitigate Financial Sector Risks

Mumbai, Apr 2 - The Reserve Bank of India (RBI) has announced its commitment to maintaining a vigilant stance to mitigate risks associated with rapid credit growth. Speaking at the India Investment Summit and Awards in Mumbai, Deputy Governor M. Rajeshwar Rao highlighted the potential dangers of unchecked credit expansion to the financial sector's health and the broader economic system.

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Rao emphasized the RBI's role in fostering a resilient financial intermediation system through appropriate regulatory and supervisory frameworks. He acknowledged the significant benefits technological advancements and innovations bring to the financial sector, including expanding access and enhancing product offerings. However, Rao also cautioned against the challenges posed by new entrants in the financial services space, such as FinTech firms, which could significantly alter market dynamics.

The Deputy Governor addressed concerns over pro-cyclical lending practices, noting substantial credit growth in consumer credit segments, particularly unsecured loans. He also pointed out the increasing reliance of Non-Banking Financial Companies (NBFCs) on bank borrowings, which has raised regulatory eyebrows. Despite no major signs of stress at a broader portfolio level, Rao affirmed that recent trends necessitated regulatory intervention from a macro-prudential perspective.

Rao further elaborated on measures taken to contain risks, including guidelines for digital lending that require due diligence in lending decisions, even when loans are sourced through lending service providers (LSPs). He stressed that banks and NBFCs' increased reliance on fintech partners should not lead to compromised underwriting standards or improper risk pricing.

Concluding his address, Rao underscored the enduring relevance of principles such as good governance, robust risk management, effective compliance, customer protection, and responsible business conduct in the evolving financial landscape. He advocated for a strong organizational culture that upholds these principles, ensuring long-term stability and integrity within the financial system.