NBFCs should remain cautious on lending; need not go too far in their enthusiasm, says Nirmala Sitharaman

Finance Minister Sitharaman cautions NBFCs, small finance banks to remain cautious while lending. RBI's tougher stance on unsecured loans to ensure financial stability. Risk weights on consumer credit, credit cards increased by 25 percentage points to 125-150%. RBI asked entities to review sectoral exposure limits for consumer credit, set board-approved limits for unsecured consumer credit.

Finance Minister Nirmala Sitharaman on November 23 said NBFCs and small finance banks need to remain cautious while lending as suggested by the Reserve Bank.

Speaking at 'DATE with Tech' event in New Delhi, Ms. Sitharaman cautioned that NBFCs and small finance banks should respect the red line and should not go too far in their enthusiasm.

"Enthusiasm is good but sometimes it becomes a bit too far for people to digest. So as a measure of caution the RBI has also alerted small finance banks, NBFCs to be careful that they don't go too far too soon and face any downside risks later," she said.

Reserve Bank Governor Shaktikanta Das on November 22 had said the central bank's tougher stance on unsecured loans earlier this month is a "preemptive" move aimed at ensuring financial stability.

Following a massive rise in unsecured lending and delinquencies, the Reserve Bank on November 16 tightened the norms for unsecured consumer credit, asking banks and NBFCs to assign a higher risk weight.

As a result, it has increased the risk weight on unsecured consumer loans and on credit cards by 25 percentage points to 125-150%. This had analysts pegging the capital cost, on banks alone, going up by at least ₹84,000 crore.

"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%," the RBI circular had said.