Banks told to use innovative products to mobilise funds

Concerned over household savings moving towards alternative investment avenues, RBI Governor Shaktikanta Das on Thursday asked banks to mobilise deposits through innovative products and services by leveraging their vast branch network.

"Banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand.

"This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues," he said.

Observing that alternative investment avenues are becoming more attractive to retail customers, he said, as a result banks are facing challenges on the funding front with deposits trailing loan growth.

Banks, he said, need to focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully their vast branch network.

Expressing concern over high growth in 'top-up' housing loans, Das said the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being strictly adhered to by certain entities in this regard.

Banks and NBFCs have also been offering top-up loans on other collateralised loans like gold loans.

"Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes.

"Banks and NBFCs would, therefore, be well-advised to review such practices and take remedial action," he said.

He also flagged the issue of rising personal loan and urged banks to monitor the credit growth in the segment.

It is observed that the sectors in which pre-emptive regulatory measures were announced by the Reserve Bank in November last year have shown moderation in credit growth.

However, he said, certain segments of personal loans continue to witness high growth.

Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from macro-prudential point of view, he said.

It calls for careful assessment and calibration of underwriting standards, as may be required, as well as post-sanction monitoring of such loans, he added.

Referring to the recent incidence of unprecedented IT outage globally, he said, the Reserve Bank has time and again emphasised the importance of robust business continuity plans (BCP) to deal with such incidents.

The outage demonstrated how a minor technical change, if it goes haywire, can wreak havoc on a global scale, he said.

"It also showed the fast-growing dependence on big-techs and third-party technology solution providers. In this background, it is necessary that banks and financial institutions build appropriate risk management frameworks in their IT, cyber security and third-party outsourcing arrangements to maintain operational resilience," he said.

Emphasing availability of accurate credit information is vital for both lenders and borrowers, Das said, it is proposed to increase the frequency of reporting of banks to credit information companies (CICs) to a fortnightly basis or at shorter intervals.

"Consequently, borrowers will benefit from faster updation of their credit information, especially when they repay their loans.

"The lenders, on their part, will be able to make better risk assessment of borrowers," he said.

At present, Das said, lenders are required to report credit information to CICs on a monthly basis or at such shorter intervals as may be agreed between the lenders and the credit bureau.