The Reserve Bank of India (RBI) Governor Shaktikanta Das on November 22 said while Indian banks and non-banking finance companies (NBFCs) were in a healthy state, they need to be watchful of emerging stress on their books.
Speaking at an event organised by the industry body FICCI and the Indian Banks Association, Das asked banks and NBFCs to continue stress-testing their books. "Banks and NBFCs must continue to do stress tests of their books. At the immediate juncture, there is no cause for worry," Das said.
"In fact, there is a strong case for companies in the real sector also to stress test their businesses and balance sheets. Many of them may already be doing so, but it would be desirable that many more also do this," Das said.
Das said at the current juncture there may not be any immediate cause for worry, but to remain on top of things, banks and NBFCs would be well advised to take certain precautionary measures.
Last week, the RBI had increassed the risk weight on consumer loans in a bid to control the rapid growth of unsecured loans on the books of banks and NBFCs.
Caution to banks on NBFC exposure
The governor said banks needed to be watchful of exposure to NBFCs, while NBFCs needed to diversify their funding sources to minimise risks. " Given the increasing importance of non-bank financial companies (NBFCs) in the financial system, the increasing interconnectedness between banks and non-banks merits close attention," Das said.
Das also indicated that the central bank's last week decision to hike the risk weight for consumer credit didn't apply to housing loans and other asset-backed loans since there was no build of stress on such borrowings.
Das also cautioned microfinance industry saying certain NBFCs-MFIs appear to be enjoying relatively higher net interest margins. "It is indeed for micro finance lenders to ensure that the flexibility provided to them in setting interest rates is used judiciously. They are expected to ensure that interest rates are transparent and not usurious," the Governor said.
Regarding the increased collaboration of Banks and NBFCs with FinTechs, Das said while there are benefits due to such collaboration, with regard to model-based lending through analytics, banks and NBFCs need to be careful in relying solely on pre-set algorithms as assumptions based on which the models are operated.
"These models should be robust and tested and re-tested periodically. They may require to be calibrated and recalibrated from time to time based on the changing contours of the financial ecosystem and fresh information. It is necessary to be watchful of any undue risk build up in the system due to information gaps in these models," Das said.
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