Reserve Bank is closely monitoring the incoming information and will take measures, Das said.
(Photo: Shutterstock)2 min read Last Updated : Oct 09 2024 | 12:14 PM ISTSome non-banking financial companies (NBFCs) are chasing "growth at any cost" without sustainable business practices and robust risk management, said Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday, warning the regulator will take action if there is no self-correction.Certain microfinance institutions (MFIs) and housing finance companies (HFCs) among NBFCs are chasing excessive returns on their equity, driven by their capital strength and under pressure from investors.
While such pursuits are in the domain of the boards and managements of NBFCs, concerns arise when the interest rates charged by them become usurious and get combined with unreasonably high processing fees and frivolous penalties, said Das in his monetary policy statement.Click here to connect with us on WhatsAppThese practices are sometimes further accentuated by what appears to be a push effect, as business targets drive retail credit growth rather than its actual demand.
The consequent high-cost and high indebtedness could pose financial stability risks, if not addressed by these NBFCs.Das asked NBFCs to review their compensation practices, variable pay and incentive structures that appear to be purely target driven in certain NBFCs.
Such practices may result in adverse work culture and poor customer services, he said.He instructed NBFCs, including MFIs and HFCs, to follow sustainable business goals; a compliance first culture; a strong risk management framework; a strict adherence to fair practices code; and a sincere approach to customer grievances.The Reserve Bank is closely monitoring these areas and will not hesitate to take appropriate action, if necessary.
Self-correction by the NBFCs would, however, be the desired option, Das warned.He highlighted the build up of stress in some unsecured segments like loans for consumption, microfinance and credit card outstanding.The Reserve Bank is closely monitoring the incoming information and will take measures, as may be considered necessary.Banks and NBFCs, on their part, need to carefully assess their individual exposures in these areas, both in terms of size and quality.
Their underwriting standards and post-sanction monitoring have to be robust.
Continued attention also needs to be given to potential risks from inoperative deposit accounts, cybersecurity landscape, mule accounts, etc, said Das.First Published: Oct 09 2024 | 11:24 AMIST