MUMBAI: In what is being viewed as a watershed year for regulatory action, the Reserve Bank of India (RBI) has taken several bold steps to tighten financial norms and curb unchecked growth.
Over the past few months, the RBI has enacted several key measures: The RBI raised the liquidity requirements by tightening the Liquidity Coverage Ratio (LCR), compelling banks to hold more liquid assets to mitigate deposit withdrawal risks.
RBI also clamped down on unsecured lending, in response to concerns over the rapid surge in such loans. The RBI has introduced stricter regulations that have already slowed down the flow of credit to high-risk borrowers.
The RBI wanted the banks to align their loan growth with deposit growth, restoring balance after years of loan growth outpacing deposits.
Addressing NBFCs’ practices, particularly targeting those charging usurious rates. Regulatory scrutiny has forced many NBFCs to reassess their models, particularly in unsecured lending and digital finance.
Loan growth to decelerate to 12%
The leading rating agency, ICRA, notes that these measures are already affecting bank credit growth, which is expected to decelerate to 12 per cent in FY25, compared with 16.3 per cent in the previous fiscal year.
The impact is being felt not only by commercial banks but also by non-banking financial companies (NBFCs), whose asset growth has been curtailed by tighter funding from banks and regulatory crackdowns on high-interest lending practices.
This coordinated tightening by the RBI marks a pivotal shift in India’s financial landscape, with both banks and NBFCs reeling under the new norms.
As ICRA highlighted, “The regulatory changes will likely have a dampening effect on unsecured retail credit and NBFC asset growth in the near term.”
These moves aim to address systemic risks and prevent over-leveraging while ensuring a more sustainable lending ecosystem.
