“We do not wait for the house to catch fire and then act…”: Why RBI governor Shaktikanta Das said this to banks & NBFCs

We do not wait for the house to catch fire and then act – that’s the clear message that the Reserve Bank of India (RBI) governor Shaktikanta Das has with regards to recent measures the central bank took on NBFCloans. “The recent pre-emptive measures taken by the Reserve Bank in respect of Banks and NBFCs were geared towards addressing potential risks and preserving the resilience of the financial sector.We do not wait for the house to catch fire and then act,” said the central bank governor in his monetary policy statement today. “Prudence at all times should be the guiding philosophy, both for the regulators and the regulated entities,” he added.
Das stressed that financial stability is a public good and that the RBI judiciously uses micro and macro-prudential tools to safeguard financial stability.
On November 16, 2023, the Reserve Bank of India increased the risk weights on unsecured consumer credit exposures of banks and NBFCs (including credit card receivables) as well as bank lending to NBFCs, other than housing finance companies (HFCs).The regulated entities have also been advised to put in place board approved limits for various sub-segments under consumer credit, specifically unsecured consumer credit.
After repeatedly warning lenders about the escalating volume of unsecured personal loans, the Reserve Bank of India took action recently, making lending to this sector more expensive by requiring banks and non-banks to hold more capital.
The RBI raised the risk weight on consumer credit from 100% to 125%, indicating that banks now need to retain Rs 11.25 for every Rs 100 loaned, up from the previous Rs 9.

Experts are of the view that this move will heighten borrowing costs for top-rated finance companies but will exempt NBFCs involved in lending to priority sectors such as housing and small and medium enterprises. It will not impact home, auto, or education loans.
The RBI had expressed clear dissatisfaction with some of the loan practices observed. While bank credit growth increased by approximately 20%, retail loans surged by 30%. Among these, credit card debts are estimated to have risen by around 30%. Banks have also extended loans to non-banking finance firms engaged in offering unsecured personal and consumer loans.