Retail loans lending fraught with risks, RBI warns banks

The RBI has warned the banks on retail lending with a stress on household leverage and indebtedness.

The RBI' "Trend and Progress of Banking in India 2018-19" report, released on Tuesday, said in the event of demand for credit slowing down from the corporate sector, the retail segment saw a surge in lending. "The slowdown in consumption and overall economic growth may affect the demand for and the quality of retail loans," it said.

"The bad loan overhang remains in the banking segment even as the resolutions under the IBC framework have seen an improvement. Issues like resolution of stressed assets, governance, fraud needs to be addressed," it said.

The health of banking industry depends on a turnaround in the macroeconomic conditions. Due to defaults and rating cuts, formal lending to NBFCs declined, the central bank said while offering ways to address the stress in the NBFC sector.

"In order to strengthen the liquidity framework for NBFCs, a liquidity coverage ratio (LCR) has been introduced for all deposit-taking NBFCs (NBFCs-D) and non-deposit taking NBFCs (NBFCs-ND) with an asset size of Rs 5,000 crore," it said.

On recapitalisation of PSBs, it said the deferment of the implementation of the last tranche of the Capital Conservation Buffer (CCB) till March 31, 2020 has offered some breathing space to these banks. Their capacity to sustain credit growth in consonance with the financing requirements of the economy will, however, warrant that capital is maintained well above the regulatory minimum, providing these banks confidence to assume risk and to lend.

( With inputs from IANS )