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On Thursday, the <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="100" keywordseo="RBI" source="keywords">RBI</keyword>) sought action against four non-banking financial companies (<keyword id="19938300" type="General" weightage="20" keywordseo="NBFCs" source="keywords">NBFCs</keyword>), barring them from making new loan sanctions and disbursements, effective October 21, 2024. A report by <keyword id="19977638" type="General" weightage="20" keywordseo="Morgan-Stanley" source="keywords" meta.keywordsubtype="org" meta.entityname="Morgan Stanley" meta.hostid="261" meta.entityid="Morgan Stanley">Morgan Stanley</keyword> suggests that more lending companies might face similar scrutiny in the coming days. As named by the RBI in its order yesterday, <keyword id="20146314" type="General" weightage="20" keywordseo="Asirvad-Microfinance" source="keywords" meta.keywordsubtype="org" meta.entityname="Asirvad Microfinance" meta.hostid="261" meta.entityid="Asirvad Microfinance">Asirvad Microfinance</keyword>, Arohan Financial Services, DMI Finance, and Navi Finserv failed to adhere to the <keyword id="21471399" type="General" weightage="20" keywordseo="Fair-Practices-Code" source="keywords">Fair Practices Code</keyword> and did not properly assess borrower's income and repayment capacities before disbursing loans, especially when it came to their microfinance loans. Additionally, these companies also resorted to dubious asset classifications and incomplete interest rate and fee disclosures, which in turn led to alarming practices like loan evergreening and more. RBI also found that the weighted average lending rate (WALR) and the interest spread charged over their cost of funds by these NBFCs were over the stipulated norms. Earlier this month, the apex had already issued a stern warning to the NBFC sector, discouraging them from pursuing aggressive loan book expansion at the cost of regulations and fair practices. Per the bank, it would be ideal if NBFCs self-corrected their ways and refrained from giving incentives and fixed targets to their employees for granting loans. As for these four NBFCs, RBI flagged significant deviations with respect to Income Recognition and Asset Classification (IR&amp;AC) norms in their functioning and gross mismanagement of their gold loan portfolios. As RBI noted, these NBFCs had outsourced several of their core financial services as well. The restrictions on these 4 NBFCs will be effective at the close of business as of October 21, 2024. But this will not affect the existing, active loans of the companies. Also, loan collection and recovery processes will also continue in line with existing guidelines. However, Morgan Stanley, in a recent report, has questioned this move, asking whether lending rates alone were the cause for concern by RBI against specified NBFCs or whether broader issues are at play. "Based on an observation of lending rate data collated and presented by MFIN (the industry body for microfinance lenders), we note that Asirvad Microfinance's lending rates are not very different from other lenders," the report said. The report also observes that more regulatory action might follow in the sector, but the intention here was not to shut down new lending by <keyword id="21739781" type="General" weightage="20" keywordseo="microfinance-institutions" source="keywords">microfinance institutions</keyword> and NBFCs entirely. RBI's restrictions will stay in place until these NBFCs show that they have fully aligned their practices with regulatory guidelines. In response, Navi Finserv Limited has noted that it is committed to conducting its business operations with the highest standards of compliance, customer service, and transparency. "The company is reviewing the directions received from the Hon’ble Reserve Bank of India and will work with them and address all the concerns raised with promptness and completeness," it further added.

Reserve Bank may act against more NBFCs to keep obscure lending practices in check, says Morgan Stanley

In a significant move, the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="100" keywordseo="rbi" source="keywords">RBI</keyword>) has imposed penalties on <keyword id="19952948" type="General" weightage="20" keywordseo="axis-bank" source="keywords">Axis Bank</keyword> and <keyword id="19895995" type="General" weightage="20" keywordseo="hdfc-bank" source="keywords">HDFC Bank</keyword> for lapses in regulatory and statutory compliance. The fines, which amount to a total of ₹2.91 crore, highlight the central bank's ongoing efforts to ensure that financial institutions adhere to prescribed guidelines. The RBI levied a penalty of ₹1.91 crore on Axis Bank for violations that included contraventions of the <keyword id="19976511" type="General" weightage="20" keywordseo="banking-regulation-act" source="keywords">Banking Regulation Act</keyword> and non-compliance with specific RBI directions related to interest rates on deposits, Know Your Customer (KYC) norms, and collateral-free loans for agriculture. Meanwhile, HDFC Bank faced a ₹1 crore fine for failing to comply with directions concerning interest rates, customer service practices, and the use of recovery agents. <h2>Axis Bank: Key regulatory failures</h2>Axis Bank’s penalty stems from a supervisory evaluation conducted by the RBI based on its financial position as of March 31, 2023. Upon reviewing the bank’s activities, the RBI found several areas of non-compliance. One of the primary issues was the opening of savings deposit accounts in the names of ineligible entities, a direct violation of regulatory norms. Additionally, Axis Bank was found to have issued multiple customer identification codes to certain clients instead of assigning a Unique Customer Identification Code (UCIC), which is mandatory to avoid duplication and ensure proper monitoring of accounts. The bank also violated guidelines concerning agricultural loans. RBI regulations prohibit banks from asking for collateral for agricultural loans up to ₹1.60 lakh, but Axis Bank had obtained such collateral in certain cases. Lastly, a wholly-owned subsidiary of Axis Bank was found to be engaged in providing technology services—an activity that is not permissible for a banking company. This contravention added to the overall penalty levied by the central bank. <h2>HDFC Bank: Regulatory shortcomings</h2> In the case of HDFC Bank, the RBI’s investigation was based on its financial position as of March 31, 2022. The central bank uncovered several violations, including the offering of gifts, specifically covering the first-year premium for complimentary life insurance, which exceeded the permissible limit of ₹250. Moreover, HDFC Bank was found to have opened savings accounts in the names of ineligible entities, a violation similar to that of Axis Bank. Another significant failure was the bank’s inability to ensure that customers were not contacted by bank officials outside the permitted time frame of 7 am to 7 pm. <h2>RBI's Stance on Compliance</h2> While the RBI has been stringent in penalising both banks, it clarified that these penalties are based on lapses in regulatory compliance and are not reflective of the validity of any transactions or agreements between the banks and their customers. The central bank’s message is clear—financial institutions must adhere strictly to guidelines to maintain transparency, protect customers, and uphold the integrity of the banking system. The penalties serve as a reminder to all banks to stay vigilant and maintain high standards of compliance to avoid such financial and reputational damage in the future. Both Axis Bank and HDFC Bank have accepted the fines and are expected to take corrective actions to avoid future infractions. For customers, this action from the RBI is a reassurance that regulatory oversight remains a priority to ensure fair banking practices across the country.

RBI slaps fine of Rs 2.91 crore on Axis Bank and HDFC Bank: All details

New Delhi: The ongoing volatility in the prices of key food items such as tomatoes, onions, and potatoes (collectively known as TOP) and pulses continues to pose significant challenges for the <keyword id="19913109" type="General" weightage="20" keywordseo="monetary-policy-committee" source="keywords">Monetary Policy Committee</keyword> (MPC) of the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="100" keywordseo="RBI" source="keywords">RBI</keyword>), highlights a report by <keyword id="19898108" type="General" weightage="20" keywordseo="SBI" source="keywords">SBI</keyword>. "Current volatility in prices of TOP and pulses continues to challenge the MPC, keeping the headline above target at 5.1 per cent in June 2024," said the report. The report highlighted that this instability in <keyword id="19960157" type="General" weightage="20" keywordseo="food-prices" source="keywords">food prices</keyword> has kept the headline Consumer Price Index (CPI) <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> above the targeted level, reaching 5.1 per cent in June 2024. While the inflationary pressures remain a concern, the report stated that there is hope on the horizon due to the currently above-normal <keyword id="19968257" type="General" weightage="20" keywordseo="monsoon" source="keywords">monsoon</keyword> and increased sowing activity, which are further supported by the potential onset of a La Nina event later in the year. "The currently above-normal monsoon and sowing, backed up by a potential La Nina event later, promise reprieve in later quarters," said the report. Importantly, the report added that it is now expected that the CPI will remain above the RBI's medium-term target of 4 per cent in all quarters up until the first quarter of FY26. This persistent overshoot highlights the ongoing inflationary pressures in the economy. "Notably, now the CPI is expected to be above RBI's target of 4 per cent in all quarters till Q1FY26," the report added. However, the report noted that the Monetary Policy Committee expects a moderation in inflation during the fourth quarter, which is anticipated to help keep the overall CPI projection for FY24 unchanged at 4.5 per cent. The SBI report also believes that the volatility in food prices, driven by uneven spatial and temporal distribution of monsoon rains, presents an upside risk to the current inflation projections. As a result, SBI maintains its CPI estimate for FY25 at 4.7 per cent year-on-year. In the latest MPC meeting on Wednesday, RBI Governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword> said inflation will moderate from July onwards as the monsoon has improved and global food prices have shown signs of easing in July. Das said, "Global food prices showed signs of easing in the month of July after registering an increase since March 2024." A degree of relief in food inflation is expected from the pickup in southwest monsoon and healthy progress in Kharif sowing. Buffer stocks of cereals continue to be above the norms, according to RBI Governor Shaktikanta Das. Das added, "Assuming a normal monsoon and taking into account the 4.9 per cent inflation print, Q1 CPI inflation for the current financial year (2024-25) is projected at 4.5 per cent, with q2 at 4.4 per cent, Q3 at 4.7 per cent and Q4 at 4.3 per cent. CPI inflation for the first quarter of next financial year (Q1 2025-26) is projected at 4.4 per cent."

High food prices raise concerns but improved monsoon offers hope for RBI: SBI report

Mumbai, The Reserve Bank on Thursday tightened norms for unsecured personal loans for banks and non-banking financial companies. The revised norms wherein risk weights have been increased by 25 percentage points will not be applicable on certain consumer loans, including housing, education, and vehicle loans. Besides, the norms will not be applicable on loans secured by gold and gold jewellery. These loans will continue to attract 100 per cent risk weight. Higher risk weight implies that banks have to keep aside more money as buffer when it comes to unsecured personal loans. In simple words, a higher risk weight restricts banks' lending capacity. Recently, RBI Governor Shaktikanta Das had flagged the high growth in certain components of consumer credit and advised banks and Non-Banking Financial Companies (NBFCs) to strengthen their internal surveillance mechanisms, address the build-up of risks and institute suitable safeguards, in their own interest. The high growth seen in consumer credit and increasing dependency of NBFCs on bank borrowings were also highlighted by the governor during the interactions with MD/CEOs of major banks and large NBFCs in July and August, respectively. "On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, by 25 percentage points to 125 per cent," the RBI said in a circular. The central bank has also increased the risk weights on credit receivables by 25 percentage points to 150 per cent and 125 per cent for banks and NBFCs, respectively.

RBI tightens norms on personal loans for banks, NBFCs

<ul><li><keyword id="6359111" type="General" weightage="80" keywordseo="shaktikanta-das" source="Orion">Shaktikanta Das</keyword> said that the recent measures to tighten <keyword id="19528809" type="General" weightage="20" keywordseo="personal-loan-norms" source="Orion">personal loan norms</keyword> are pre-emptive, calibrated and targeted.</li><li>The governor is of the view that banks and NBFCs are increasingly relying on high-cost short term bulk deposits, while the tenure of the loans is getting elongated.</li><li>Lenders must not rely solely on pre-set algorithms while lending through analytics, the regulator said. </li></ul>The governor of <keyword id="6354335" type="General" weightage="50" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> (RBI) Shatikanta Das said on Wednesday that the recent measures taken to tighten personal loan norms were pre-emptive, calibrated and targeted. Speaking at an event in Mumbai, Das also suggested banks, shadow banks and other financial entities stress test their books. “In fact, there is a strong case for companies in the real sector also to stress test their businesses and balance sheets,” said Das. Last week, RBI increased the <a href="https://www.businessinsider.in/finance/news/rbi-tightens-norms-on-personal-loans-for-banks-nbfcs/articleshow/105269235.cms">risk weightage for unsecured loans </a>given out by banks and non-banking financial institutions (NBFCs). But education, auto, housing and MSME loans were left out of the new norms. Real estate companies have been on an expansion spree, after the sector was re-energized since the pandemic. ‘Avoid all forms of exuberance’ The governor who was speaking at the FIBAC conference also had a few suggestions for banks and NBFCs who are enjoying the phase of high credit growth. Credit expansion and its pricing should be in sync with risks, and all forms of exuberance must be avoided, he advised. He also said that banks and shadow banks must strengthen their asset liability management and give greater attention to their liabilities side. “In certain cases, we have observed increased reliance on high cost short term bulk deposits while the tenure of the loans, both in retail and corporate loans, is getting elongated,” Das said. Das also pointed out that 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,” he said. Banks too were warned of their exposure to NBFCs, who regularly borrow from banks. “Though the banks are well capitalised, they must constantly evaluate their exposure to NBFCs and the exposure of individual NBFCs to multiple banks. The NBFCs on their part should focus on broad basing their funding sources and reducing overdependence on bank funding,” he added. ‘Re-test your analytics, algorithms’ Lending institutions have been adopting digitalization at a rapid pace. They have not only eased access, increased reach of banking services but also helped institutions bring down operational costs. Here too, Das sounded a word of caution, especially with regards to model-based lending through analytics. They must not rely solely on pre-set algorithms as assumptions based on which the models operate, he observed and suggested they’re calibrated from time to time with fresh information. “It is necessary to be watchful of any undue risk build up in the system due to information gaps in these models, which may cause dilution of underwriting standards,” Das said. SEE ALSO <a href="https://www.businessinsider.in/personal-finance/news/the-dark-truth-behind-rbis-crackdown-on-easy-personal-loans/articleshow/105287366.cms">The dark truth behind RBI’s crackdown on easy personal loans</a> <a href="https://www.businessinsider.in/finance/news/rbi-tightens-norms-on-personal-loans-for-banks-nbfcs/articleshow/105269235.cms">RBI tightens norms on personal loans for banks, NBFCs</a>

RBI governor asks realty companies to stress test their books

<ul><li>Three banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points.</li><li>Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans.</li><li>Borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023, as per a report.</li></ul> Shares of <keyword id="116253" type="General" weightage="50" keywordseo="sbi-cards" source="Orion">SBI Cards</keyword>, RBL Bank, <keyword id="6357149" type="General" weightage="50" keywordseo="hdfc-bank" source="Orion">HDFC Bank</keyword> and <keyword id="6653" type="General" weightage="50" keywordseo="icici-bank" source="Orion">ICICI Bank</keyword> are expected to come under pressure after the Reserve Bank of India asked lenders on Thursday to set aside more capital for consumer loans. This move is expected to impact the capital buffers of these banks. According to analysts, these banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points. For banks the first line of defense against bad loans is CET Tier 1 capital or Common Equity Tier 1 capital (CET1), which is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. According to Motilal Oswal Financial Services, the CET 1 impact would be maximum for RBL/HDFC Bank/ICICI Bank at 84 basis points/72 basis points/64 basis points. Among non banks, SBI Cards would be the most vulnerable with a 416bp impact on capital ratios. Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans. If a bank had to set aside say ₹20 for loans, it will now have to set aside 25% more for every unsecured loan it issues. Not just this the banks will have to set aside more capital if they want to lend to shadow banks or non banking financial institutions as well. When cost of capital increases, so will lending rates. In the years after the pandemic broke, unsecured personal loans to retail borrowers have been on a steady rise. Not just banks but even non banks have been merrily issuing such loans to borrowers, and in many cases these borrowers have multiple such loans used for consumption. From 12-14% these loans are now growing at 30% rate. The central bank has cracked down on some non banks for not adhering to norms while underwriting such small ticket loans. The red flags have been flying high for a while now. According to proprietary research done by UBS, borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023. New disbursement of personal loans to borrowers with weaker credit profiles accounted for 22% of disbursements. Of all banks, UBS was of the view that state-owned banks and non banking financial companies had a much higher share of weak borrowers compared to private banks. Analysts believe that pressure on net interest margins and higher credit costs to impact earnings of banks and shadow banks over FY24 and FY25. Paytm, a fintech company, has recently built a large loan portfolio which is mostly comprised of personal loans. With the <keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword> cracking down on these loans, the loan growth will be impacted for Paytm too. Deepak Shenoy, CEO of Capital Mind, took to social media to explain the impact, “See how it affects SBI cards: SBI Cards had credit card receivables of ₹ 45,000 crore with 23% capital adequacy ratio (CAR). So ₹10,500 cr in capital (23% of ₹45Kcr). Increase risk weight to 125% means ₹45K cr=₹56K cr risk weighted assets.” Shenoy explains that if “SBI Cards wants to grow, and keep high CARs (min is 15% I think?) they’ll need to raise capital and dilute. Which means for the same profit = higher capital. Means lower ROEs.” ALSO READ: <a href="https://www.businessinsider.in/stock-market/markets/news/foreign-investors-continue-to-bet-big-on-banks-and-nibbling-on-small-and-mid-cap-stocks/articleshow/104462273.cms" data-type="tilCustomLink" target="_blank">Borrowers with multiple personal loans a big risk to profitability of banks and NBFCs</a>

RBI tightens norms on personal loans for banks and NBFCs; stocks to be under pressure

Mumbai (Maharashtra) [India], August 8 (ANI): <keyword id="64190" type="General" weightage="100" keywordseo="RBI-Governor" source="Orion">RBI Governor</keyword> <keyword id="6359111" type="General" weightage="20" keywordseo="Shaktikanta-Das" source="Orion">Shaktikanta Das</keyword> says <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> will moderate from July onwards as the monsoon has improved and <keyword id="489239" type="General" weightage="20" keywordseo="Global-food-prices" source="Orion">global food prices</keyword> have shown signs of easing in July. Das said, "Global food prices showed signs of easing in the month of July after registering an increase since March 2024." A degree of relief in food inflation is expected from the pickup in southwest monsoon and healthy progress in Kharif sowing. Buffer stocks of cereals continue to be above the norms, according to RBI Governor Shaktikanta Das. Das added, "Assuming a normal monsoon and taking into account the 4.9 per cent inflation print, Q1 CPI inflation for the current financial year (2024-25) is projected at 4.5 per cent, with q2 at 4.4 per cent, Q3 at 4.7 per cent and Q4 at 4.3 per cent. CPI inflation for the first quarter of next financial year (Q1 2025-26) is projected at 4.4 per cent." The inflation landscape reflects mixed signals, to which Das said, "<keyword id="21258540" type="General" weightage="20" keywordseo="headline-inflation" source="keywords">Headline inflation</keyword> eased up to 5.1 per cent in June 2024 due to higher than expected food inflation. Fuel remained in deflation for the 10th consecutive month. Core inflation moderated to a historic low in the months of May and June." RBI Governor Shaktikanta Das, outlined the <keyword id="19900794" type="General" weightage="20" keywordseo="economic-growth" source="keywords">economic growth</keyword> with real <keyword id="19972825" type="General" weightage="20" keywordseo="GDP-growth" source="keywords">GDP growth</keyword> of 7.2 per cent for the fiscal year 2024-25 and headline inflation eased to 5.1 per cent in June, on Thursday. Das said, "Real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.1 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent and Q4 at 7.2 per cent. Real GDP growth for Q1 2025-26, this is something which we are giving for the first time, is projected at 7.2 per cent. The risks are evenly balanced." He added, "We have slightly moderated the <keyword id="387719" type="General" weightage="20" keywordseo="growth-projection" source="Orion">growth projection</keyword> for the first quarter of the current financial year in relation to the projection we gave in the previous MPC in June. This is primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, general government expenditure and core industries output." This forecast marks a slight moderation from previous estimates provided in the Monetary Policy Committee (MPC) meeting in June, attributed to recent updates on high-frequency indicators such as corporate profitability, general government expenditure, and core industries output. The inflation landscape reflects mixed signals, to which Das said, "Headline inflation eased up to 5.1 per cent in June 2024 due to higher than expected food inflation. Fuel remained in deflation for the 10th consecutive month. Core inflation moderated to a historic low in the months of May and June." Balancing robust growth projections with a nuanced understanding of inflation dynamics Governor Das stated, "Food inflation which has a weight of around 46 per cent in the CPI basket, contributed to more than 75 per cent of headline inflation in May and June. Vegetable prices increased sharply and contributed about 35 per cent to inflation in June. High inflation pressures persisted across other major food items also." Governor Das mentioned softening in core inflation continues to be broad-based with core services inflation touching a new low in the current CPI series during the month of May and June 2024. Das stated, "The high food price momentum likely to have continued in the month of July also. Large favourable base effects may however push headline inflation downwards in July. The Impact of the revision in milk prices mobile tariffs also needs to be carefully monitored." A degree of relief in food inflation is expected from the pickup in south west monsoon and healthy progress in Kharif sowing. Buffer stocks of cereals continue to be above the norms, according to RBI Governor Shaktikanta das. Das anticipates some relief in food inflation due to the expected pickup in the southwest monsoon and healthy progress in Kharif sowing. Buffer stocks of cereals remain above the normative levels, contributing to a more stable food price environment. Global food prices, which have been on an upward trajectory since March 2024, showed signs of easing in July.

RBI Governor Shaktikanta Das projects 7.2% GDP growth for 2024-25, reports eased inflation to 5.1% in June

<div type="image" title="RBI" agency="ANI" height="900" width="1200" msid="105464045" hostid="261" sizebytes="40796" caption="&amp;lt;p&amp;gt;RBI&amp;#39;s vigilance: New consumer credit norms to bolster India&amp;#39;s financial stability amidst surging loan growth&amp;lt;/p&amp;gt;"></div>In a proactive move aimed at mitigating potential systemic risks associated with the rapid growth of <keyword id="437168" type="General" weightage="20" keywordseo="consumer-credit" source="Orion">consumer credit</keyword>, the Reserve Bank of India (<keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>) has implemented stringent measures, impacting both banks and non-bank financial institutions (NBFIs). <keyword id="125045" type="General" weightage="20" keywordseo="fitch-ratings" source="Orion">Fitch Ratings</keyword> has provided insights into the repercussions of these regulatory adjustments on the financial sector. The central focus of the regulatory adjustments is to mandate banks and NBFIs to allocate more capital against unsecured consumer credit. Fitch Ratings views these changes as a credit-positive effort by regulatory authorities to control emergent risks in consumer credit. Notably, the growth of unsecured credit card loans and personal loans by banks witnessed an impressive 29.9 per cent and 25.5 per cent year-on-year increase, respectively, in the first half of the financial year ending March 2024. This surge in consumer credit raised concerns, prompting the need for preventive measures. The increasing exposure to unsecured consumer credit considered a riskier <keyword id="6360217" type="General" weightage="20" keywordseo="loan" source="Orion">loan</keyword> category, signals a greater risk appetite among banks and NBFIs. This trend is attributed to the institutions seeking to protect net interest margins (NIMs) amid fierce competition for secured retail loans. The regulatory changes introduce higher risk weightings, aligning for both banks and NBFIs. While risk weightings for credit-card lending increase to 125 per cent (from 100 per cent previously) for NBFIs, banks maintain a higher 150 per cent. Microfinance is excluded from higher risk weights for NBFIs, distinguishing it from banks. Fitch Ratings estimates that the measures may lower the common equity Tier 1 (CET1) ratio of the banking system by around 30 basis points. The impact varies for Fitch-rated banks, ranging from 6 to 34 basis points, with a double-digit impact expected for private banks like State Bank of India (SBI) and Canara Bank. Private banks, with relatively better CET1 capitalization, are expected to maintain reasonable capitalization even after the changes. The measures, however, may not significantly lower banks' capital scores or standalone Viability Ratings (VRs), though SBI's VR headroom could narrow. Fitch-rated NBFIs, including Shriram Finance Limited, Muthoot Finance Ltd, IIFL Finance Limited, and Manappuram Finance Limited, witness an impact on capitalization ratios, loan growth, and future asset quality. However, the overall impact is expected to be limited, with these entities benefiting from reduced systemic risk. NBFIs may experience a rise in bank funding costs by 40 to 60 basis points. This assumes that banks pass on capital costs from higher risk weights on loans to NBFIs. Larger NBFIs are better positioned to negotiate favorable terms with banks, while lower-rated entities could face greater increases. Loans to housing finance companies and NBFIs eligible for priority sector classification are excluded from the adjustment, benefiting entities like Shriram due to their priority sector exposure. The regulatory changes aim to strike a balance between fostering consumer credit growth and preventing the buildup of systemic risks. The phased implementation of these measures underscores the regulators' commitment to maintaining financial stability while allowing financial institutions time to adapt to the new norms. As India's financial landscape undergoes these adjustments, stakeholders are closely monitoring the impact on lending practices, risk management, and overall economic resilience. (ANI)

RBI's vigilance: New consumer credit norms to bolster India's financial stability amidst surging loan growth

Mumbai, The <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> on Thursday said that it has decided to come out with a new <keyword id="20027459" type="General" weightage="20" keywordseo="framework" source="keywords">framework</keyword> for authentication of digital payment transactions and introduce additional norms to enhance the security of the Aadhaar Enabled Payment System (<keyword id="19946538" type="General" weightage="20" keywordseo="aeps" source="keywords">AePS</keyword>). Over the years, the <keyword id="19922074" type="General" weightage="20" keywordseo="reserve-bank" source="keywords">Reserve Bank</keyword> has prioritised security of digital payments, in particular the requirement of Additional Factor of Authentication (AFA). Although the RBI has not prescribed any particular AFA, the payments ecosystem has largely adopted SMS-based One Time Password (<keyword id="19957209" type="General" weightage="20" keywordseo="otp" source="keywords">OTP</keyword>). With innovations in technology, alternative authentication mechanisms have emerged in recent years. "To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based 'Framework for authentication of digital payment transactions'. Instructions in this regard will be issued separately," the RBI said. To enhance the security of AePS transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators, to be followed by banks. Additional fraud risk management requirements will also be considered. Instructions in this regard shall be issued shortly, the RBI said. Aadhaar Enabled Payment System, operated by NPCI, enables customers to perform digital payment transactions in assisted mode. In 2023, more than 37 crore users undertook AePS transactions, which points to the important role played by AePS in financial inclusion.

RBI plans new framework for authentication of digital transactions

<ul><li>Unified regulatory framework on connected lending aims to strengthen pricing and management of credit by regulated entities.</li><li>Experts believe that this move is related to bank lending to NBFCs.</li><li><keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword> will also come up with a regulatory framework for web-aggregation of loan products. </li></ul> The Reserve Bank of India (RBI) said on Friday that it will come up with a unified regulatory framework on connected lending for the entities it regulates. This move is to strengthen the pricing and management of credit by regulated entities. “The extant guidelines on connected lending are limited in scope,” said Shaktikanta Das, governor of RBI said in his speech where he announced that the Monetary Policy Committee <a href="https://www.businessinsider.in/finance/news/rbi-expects-indias-gdp-to-grow-at-7-in-fy24-keeps-repo-rate-unchanged/articleshow/105828012.cms">has decided to keep repo rates unchanged</a>. RBI’s deputy governor Rajeshwar Rao clarified at the press conference that the regulations do not refer to interconnectedness. “Connected lending refers to persons who are in the position to control the decision of the lender,” he said, without giving any more details. Das said that it refers to cases where the director of a bank borrows from the same bank and can have some influence. It also refers to cases of related parties as well, he clarified. “It has nothing to do with interconnectedness,” Das said. The central bank has recently increased the risk weightage on unsecured loans given out by banks and NBFCs. “It’s a pre-emptive measure to address potential risks. We don’t wait for the house to catch fire and then act,” said Das. Neutrality and transparency to web-aggregators of loans The RBI also said it will lay down a regulatory framework for web-aggregation of loan products. Das said that he has noticed that such loan products are harming consumer interest and the framework is expected to result in enhanced customer centricity and transparency in digital lending. This move is a follow-up to the recommendations they received from the working group on digital lending norms, says Rabi Shankar, deputy governor of RBI. The Reserve Bank had introduced a regulatory framework for digital lending in August/September 2022. The digital lending ecosystem also comprises of services that aggregate loan offers from lenders (called web-aggregation of loan products) for guidance of customers. “Lenders on web platforms get their information from various sources and give weightage to customers. Sometimes they might miss something,” added Shankar. Das said that the move will bring neutrality, transparency and avoid mis-selling and also not influence the decision of the borrower. SEE ALSO <a href="https://www.businessinsider.in/stock-market/markets/news/nifty-scales-21000-as-stocks-rally-and-rbi-mpc-hikes-growth-forecast/articleshow/105829753.cms">Nifty scales Mount 21,000 as RBI hikes growth forecast</a> <a href="https://www.businessinsider.in/finance/news/rbi-expects-indias-gdp-to-grow-at-7-in-fy24-keeps-repo-rate-unchanged/articleshow/105828012.cms">RBI expects India’s GDP to grow at 7% in FY24; keeps repo rate unchanged</a>

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