RBI Targets Fintech Lenders in Comprehensive Review of Loans Under Rs 50,000

Mumbai, Jul 29 (KNN) In a move that signals growing regulatory concern over the burgeoning small-ticket loan market, the Reserve Bank of India (RBI) has launched a comprehensive review of loans up to Rs 50,000 across banks and fintech lenders.

This scrutiny comes in the wake of alarming patterns observed in consumer borrowing behaviour and potential risks to financial stability.

Sources close to the matter reveal that the central bank's attention was drawn to data indicating that a significant portion of borrowers in this segment simultaneously maintain three active loans.

This trend has raised red flags among regulators, who suspect it could be indicative of 'evergreening' – a practice where new loans are used to repay existing debt, potentially masking underlying financial distress.

More worryingly, there are suspicions that some of these funds may be finding their way into the capital markets, further exacerbating concerns about financial system stability and the misuse of unsecured credit.

This latest move by the RBI should be viewed in the context of its November 2023 directive, which mandated that all regulated entities (REs) reassess their exposure limits for consumer credit.

The central bank specifically highlighted unsecured consumer credit exposures, requiring banks and other lenders to establish board-approved limits for various sub-segments by February 29, 2024.

Industry experts see this as part of a broader strategy by the RBI to curb excessive risk-taking in the consumer lending space, particularly in light of the rapid growth of digital lending platforms and the ease of access to credit they provide.

"The RBI's proactive stance is commendable," says Dr. Rajesh Kumar, a veteran banking analyst. "With the proliferation of fintech lenders and the increasing digitisation of financial services, it's crucial to ensure that consumer credit growth remains sustainable and doesn't lead to a bubble."

The central bank's concerns are not unfounded. The small-ticket loan segment has seen explosive growth in recent years, driven by rising consumer aspirations and the availability of easy credit.

However, this growth has also brought with it increased risks of overleveraging, particularly among younger, less financially savvy borrowers.

The RBI's move is likely to have far-reaching implications for both traditional banks and new-age fintech lenders. Industry insiders expect a tightening of lending norms and more rigorous checks on borrowers' existing loan obligations.

As the February 29 deadline for implementing new exposure limits approaches, all eyes will be on how financial institutions respond to the RBI's directives and what impact this will have on the broader consumer credit landscape.

(KNN Bureau)