Shaktikanta Das advises banks to conduct stress tests amid recent lending curbs, emphasizing the need to avoid financial "exuberance."
Date: 22-11-2023
In a cautionary address, India's Central Bank Governor, Shaktikanta Das, has urged financial institutions to exercise vigilance and avoid "exuberance" in the wake of recent lending curbs. Das, speaking at an annual conference in Mumbai, emphasized the importance of stress tests for banks and non-bank financial companies to ensure sustainable credit growth.
The Reserve Bank of India (RBI) recently implemented measures to curb unsecured lending, triggering a sell-off in financial stocks amid concerns over potential rises in borrowing costs and impacts on profits.
Das clarified that the macroprudential measures were designed to foster sustainable credit growth. Notably, home and car loans were exempted from restrictions, as they contribute to economic growth.
As lending accelerates, the governor stressed the need for caution, asserting that credit growth at all levels should be sustainable, and any form of financial exuberance must be avoided.
- RBI is "completely focused" on achieving the 4% inflation target.
- Monetary policy must remain "watchful" and "actively disinflationary."
- Moderation in core inflation highlights the effectiveness of monetary policy.
- The rupee's low volatility aligns with the strength of the underlying economy.
- Concentrated linkages between banks and shadow banks pose contagion risks; attention to liabilities is crucial.
The central bank has maintained a consistent hawkish policy stance, keeping interest rates unchanged for four consecutive meetings. The next monetary policy decision is scheduled for December 8. Despite easing inflation in October, concerns about rising food prices persist, with Goldman Sachs projecting no interest rate cuts until the final quarter of 2024.