Vichaara written by: Anjan Babu.S
Vichaara edited by : Sanjana Sudarshan
Souce Article: The World’s Most-Loved Emerging Market Is Feeling Jittery (bqprime.com)
Author of Source Article: Andy Mukherjee
India’s central bank Governor Shaktikanta Das warned banks to undertake stress tests and said all forms of “exuberance” should be avoided, days after imposing curbs on some lending.
“The Reserve Bank of India is also taking more direct steps to rein in debt-fueled consumption. The octopi have assets; the non-octopi have liabilities. Consumer loans is how the masses are keeping their heads above water amid high food and energy costs. Banks and finance companies have been so active in pushing retail credit out the door that the central bank had to step in this month and raise capital requirements against unsecured personal loans”
“That is the prudent thing to do. Lending to subprime borrowers has become incredibly efficient in India because of the new digital technologies employed to attract and screen borrowers, pool their loans and find a deposit-taking institution to take the credit risk. However, retail loans, growing at twice the pace of total advances, could spiral out of control. And that could become a recipe for future trouble amid high unemployment and stagnant real wages”
Agraga’s Take
Fintech Startups and NBFCs, anticipating a lenient RBI stance, are essentially gambling on the central bank's unyielding commitment to financial sobriety.