SBI Chairman Dinesh Khara Addresses Impact of RBI Tightening on Bank’s Unsecured Lending
In response to the Reserve Bank of India’s directive to raise risk weights on consumer loans, State Bank of India Chairman Dinesh Khara anticipates a “slowdown” in the bank’s unsecured lending portfolio.
Khara also stated that the increased risk weights would have a 0.02-0.03 percent impact on SBI’s net interest margins in the December quarter. However, he expressed optimism that a clearer picture would emerge in the subsequent quarter.
“We will continue with our current practices, but there will be a moderation,” Khara remarked to reporters on the sidelines of a FIBAC event in response to a query about the RBI’s stricter rules.
The national banking regulator had earlier this month cautioned lenders and instructed them to raise risk weights on unsecured lending for both banks and non-banks.
The RBI has instructed lenders to set aside more funds for each risky loan. This step will ensure that these unsecured loans are better protected with larger buffers in the event of any stress. On the other hand, personal loans and credit card borrowings will become more expensive as a result of the announcement.
Khara pointed out that the interest rates on such loans would also rise due to the rising cost of funding. He also mentioned that the new RBI norms would lead to an increase in capital costs that the bank would have to bear.
He later emphasized SBI’s already “robust” standards and stated that there would be no change in diligence procedures. He noted that SBI’s gross non-performing assets from its unsecured loan portfolio are at 0.70 percent.
Khara had previously stated in November that the bank was not worried about its unsecured loan portfolio due to its strong performance.
