RBI Governor Cautions Against Credit 'Exuberance' in India

Reserve Bank of India (RBI) Governor Shaktikanta Das emphasised the pre-emptive nature of tighter rules for consumer lending, advising lenders to conduct stress tests and take precautionary measures to avoid excessive risk. 

The recently introduced macro-prudential measures are deemed essential for sustainability and are targeted to curb exuberance in lending, particularly in personal and unsecured loans. While major growth drivers like housing, vehicle and small business loans have been excluded from the tightened regulations, Das stressed the importance of continued stress testing for banks, non-bank financial entities and companies in the real sector. 

The RBI's focus on sustainable credit growth and the alignment of credit portfolio expansion with risk considerations were highlighted, along with the need for banks and non-banking financial companies (NBFCs) to strengthen their asset liability management. Das also urged NBFCs to diversify funding sources and reduce reliance on bank funding. 

Despite the resilient state of the Indian banking system, Das encouraged constant evaluation of exposure to NBFCs and individual non-bank lenders, emphasising the importance of risk management practices and building buffers to face potential adversities in the business cycle.