RBI Governor Stresses Caution in Lending Practices and Analytics Reliance

Reserve Bank of India (RBI) Governor Shaktikanta Das emphasized the need for financial institutions to exercise caution in lending, consider risks in loan pricing, and exercise prudence in relying on analytics-driven lending when collaborating with fintechs. Stressing the importance of ongoing stress-testing and precautionary measures, Das highlighted four key concerns: the sustainability of credit growth, the interconnectedness between banks and non-banking financial companies (NBFCs), the pricing of loans by microfinance institutions (MFIs), and potential overreliance on analytics.

In terms of credit growth, Das advised financial entities to ensure sustainability and strengthen asset liability management. He expressed concern over the increasing importance and interconnectedness of NBFCs with banks, urging attention to their borrowing relationships and potential risks. Das also cautioned against excessive dependence on analytics in lending collaborations with fintechs, emphasizing the need for careful evaluation and constant monitoring of exposures.

Additionally, Das highlighted the importance of transparency in interest rates for NBFC-MFIs and urged caution in their lending practices. He advised MFIs to judiciously use their pricing freedom, considering the affordability and repayment capacity of borrowers. Overall, Das emphasized the necessity for financial institutions to remain vigilant and proactive in addressing potential risks in the evolving financial landscape.

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