New Delhi, Mar 18 (KNN) The Reserve Bank of India (RBI) is stepping up its efforts to tackle the "exuberance" in retail lending, expanding its attention to include emerging sectors like mortgage-linked "top-up" loans.

Concerns regarding the rising risks to the financial system have led the central bank to bolster its supervision of the industry and urge individual lenders to limit credit in identified high-risk areas, reported Reuters.

Though no formal enforcement measures have been implemented yet, the report indicates that the RBI is actively tightening supervision and prodding financial institutions to take proactive measures.

In the past six months, the RBI has rolled out several measures aimed at curbing retail lending by both banks and non-bank financial institutions.

Additionally, it has issued public warnings cautioning against "all forms of exuberance" in lending practices.

This heightened scrutiny, effectively serving as a warning for financial institutions, marks a shift for the central bank. Notably, as recently as September, the RBI had stated that India's credit expansion did not suggest the emergence of systemic stress.

According to sources cited in the report, the RBI is adopting a four-step approach to supervision, encompassing monitoring, warning, penalising, and taking action.

The aim is to provide entities with an opportunity to rectify their course based on public or specific warnings, while also taking action when necessary.

Initially, the RBI generally utilises moral persuasion tactics like delivering speeches, engaging in discussions with bank executives, and holding individual meetings to prompt banks to address concerns before considering more assertive enforcement actions.

The report further reveals that the RBI is cautioning lenders about mortgage top-ups, advising them on the risks associated with algorithm-based credit models, and encouraging some institutions to moderate co-lending.

In a related development, RBI Governor Shaktikanta Das, in December, emphasised that the central bank does not wait for the house to catch fire before taking action, particularly when discussing the stricter regulations announced for personal loans.

(KNN Bureau)