NEW DELHI: By increasing the short-term rate at which it lends to banks and the risk-weightage on personal loans and credit card debt, the Reserve Bank of India (RBI) may have forced banks to be more prudent in their lending.
The central bank has clearly indicated that it would like banks to do this, to “lend more carefully and conduct more stringent checks on who they lend to,” said Gaurav Mashruwala, a Mumbai-based financial planner.
It has done this by asking that they keep more capital aside, as a safety net of sorts (termed provisioning in banking speak), for all personal loans and credit card debt.
RBI’s decision may have been prompted by its fears, voiced by its governor Y.V. Reddy, that a growth in consumer spending may be part ly responsible for inflation, which was at 6.1% in the second week of January, a two-year high.
“I must admit that the increase in provisioning requirements was a surprise,” said V. Vaidyanathan, executive director at ICICI Bank, who expects a slowdown in consumer debt because of this.
“For a while now, the banking industry has been believing that that strong demand factors will sustain credit growth despite an increase in interest rates. But I feel the point has been reached where the incremental credit demand will be impacted, ” he added.
By insisting on higher provisioning for only personal loans and credit card debt, RBI may have provided some relief to home loan customers. “This will not have an impact on housing loan consumers,” said Renu Karnad, executive director at Housing Develepoment Finance Corporation (HDFC), one of India’s largest home loan providers.
While most bankers were certain that interest rates on home loans would increase, they could not put a number to the potential increase. “Earlier, there was a reluctance to take loans for luxuries rather than necessities. Now, people don’t mind taking loans to buy cars, gold, jewellry or go on holidays,” says Ranjit Mudholkar, chief executive of the Financial Planning Standards Board of India, who believed the increase in rates could induce some prudence.
“I think the central banker anticipated and addressed this before it becomes an issue,” said Nicholas Winsor, head, personal financial services, HSBC India. The bank has increased its retail lending rates from 11% to 11.75%, for floating loans and 11% to 11.5% for fixed loans.