Banks should keep an eye on loans given to retail and MSMEs: RBI

Mumbai : The Reserve Bank of India (RBI) on Thursday asked banks to keep a watch on loans given to retail and small companies. He said that a lot of pressure is visible on both these areas. In the half-yearly Financial Stability Report, RBI also asked banks to strengthen capital position, improve governance and be cautious about the impact of global uncertainty in the current favorable market conditions.

The report said that banks need to be especially vigilant about credit demand from productive and viable sectors, while avoiding adverse selection bias. It said that with great expectation the impact of the second wave of the COVID pandemic should last till the first quarter of the current fiscal. While the pressure on inflation is expected to remain for the half yearly.

RBI said consumer credit had become a favorite for banks. But after the moratorium given to repay the loan for six months i.e. till September 2020, the situation in this case has worsened. The customer risk distribution in the case of the debt-ridden population has shifted to a relatively higher risk in January 2021 as compared to earlier January 2020. Customer loan portfolios at financial institutions other than public sector banks are showing signs of initial pressure.

According to the report, the rate of default in consumer loans for public sector banks improved to 1.8 per cent in January 2021 from 2.9 per cent in the same month a year ago, according to the report. On the other hand, it doubled to 2.4 per cent in case of private sector and to 6.7 per cent for non-banking sector from 5.3 per cent.

In terms of credit to Micro, Small and Medium Enterprises (MSMEs), private sector banks registered a healthy growth of 9.23 per cent while it was 0.89 per cent in case of public sector banks. This is because of the rapid growth in the Emergency Credit Facility Guarantee Scheme (ECLGS). Under this 2.46 lakh loans were given till February 2021. According to RBI, although debt restructuring has been done in the case of small loans, despite this, there is pressure for public sector banks regarding MSMEs.