RBI expresses concerns over rising NPLs in unsecured lending, takes proactive measures

Axis Bank's Managing Director and CEO, Amitabh Chaudhry, said that the Reserve Bank of India (RBI) is closely monitoring the first signs of non-performing loans (NPLs) emerging in the unsecured lending space. The revelation was made during the third edition of the India Economic Summit 2023 in New Delhi.

Chaudhry highlighted that retail loans have experienced growth at 25 per cent, outpacing the overall loan growth of 13.2 per cent. Notably, the rate of growth has been even higher for unsecured loans, raising concerns for the RBI.

The central bank had last month increased risk weights for consumer lending, encompassing credit cards and personal loans.

The Axis Bank CEO pointed out that when analysing the data, the NPL ratio is notably higher for loans below Rs 50,000, especially in cases involving fintech companies. Chaudhry highlighted that the pace of growth in unsecured lending is a cause for worry, with fintechs potentially overextending themselves.

The interconnectedness of banks’ lending to Non-Banking Financial Companies (NBFCs) was also underscored, with concerns that the exposure to unsecured lending is high, both directly and indirectly. Chaudhry stated that the RBI is taking proactive measures to prevent potential issues in the financial system, expressing worries about exuberance, fintechs taking excessive risks, and the leverage of some borrowers.

While the RBI has already implemented measures to address these concerns, Chaudhry suggested that further actions might be taken in the future.
Regarding financial inclusion, Chaudhry acknowledged the regulatory requirement that 25 per cent of financial services must be provided in rural areas. He stressed the immense opportunity for growth in these untapped markets, seeing it not just as an obligation but as a strategic move for the overall wealth growth of the country.

On the topic of fintechs, Chaudhry noted that they are a driving force in the industry, highlighting the need for traditional banks to adapt and provide customer experiences comparable to fintechs. Compliance with regulations was stressed as non-negotiable, with Chaudhry citing the regulator's clear stance on adherence to rules.