RBI raised concerns over increasing reliance on unsecured lending and private credit in its annual “Trends and Progress of Banking in India 2023-24” report. Despite declining Gross Non-Performing Assets (GNPA) and sustained profitability, the report emphasizes emerging financial risks.
Key Highlights of RBI’s Report
- Decline in NPAs:
- GNPAs fell to a 13-year low of 2.7% (March 2024), further declining to 2.5% (September 2024).
- Retail Loan Segment: Lowest GNPA ratio at 1.2% (September 2024).
- Agriculture Loans: Highest GNPA ratio at 6.2%.
- Education Loans: Significant improvement, dropping from 5.8% (March 2023) to 2.7% (September 2024).
- Profitability:
- Banks’ profitability rose with Return on Assets (RoA) at 1.4% (first half of 2024-25) and Return on Equity (RoE) at 14.6% (FY24).
- NBFC sector showed double-digit credit growth, strong Capital Adequacy Ratios (CRAR), and improved asset quality.
- Scheduled Commercial Banks (SCBs): Strong credit and deposit growth.
- Urban Co-operative Banks (UCBs): Enhanced asset quality, capital buffers, and profitability.
- Rising Share of Unsecured Loans:
- Share of unsecured loans in SCBs’ total credit rose to 25.5% (March 2023), slightly decreasing to 25.3% (March 2024).
- RBI introduced stricter norms in November 2024, raising risk weights and capping exposure limits.
- Concerns over misuse of top-up loans due to lax adherence to guidelines; mandated top-up loans secured by depreciating assets to be classified as unsecured loans.
- Rise of Dark Patterns:
- The report highlighted manipulation in consumer decision-making; the Central Consumer Protection Authority (CCPA) issued guidelines, and RBI is evaluating the issue among regulated entities.
- High Employee Attrition:
- Attrition rates reached 25% in the past three years, creating operational risks like service disruption, loss of institutional knowledge, and recruitment cost increases.
- Slippage Ratio:
- Slippage ratio improved in 2023-24; private sector banks (PVBs) had higher ratios than public sector banks (PSBs) due to fresh accretions to NPAs.
- RBI Recommendations:
- Address employee attrition with strategies like better onboarding, training, mentorship, competitive benefits, and fostering a supportive workplace culture.
- Strengthen compliance with credit appraisal and prudential guidelines to mitigate risks associated with unsecured lending.
