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RBI quizzes banks on business models
May 22, 2023
The Reserve Bank of India has undertaken an exercise to understand the business models of banks in its ongoing annual inspection as the banking sector has not seen much disruption in the loan growth trends even with the increase in interest rates.
Every year to make the routine annual inspection of banks interesting, the RBI picks up a certain aspect and quizzes banks. For FY23, the theme is the sustainability of business models. It is learnt from highly placed sources that the banking regulator is closely understanding and questioning banks about their business models in the ongoing annual inspection. This is particularly so for the top ten banks of the country.
“Despite the sharp hike in repo rates and lending rates, we have not seen much disruption in the loan growth trends or asset quality of banks. This is quite unusual compared to previous rate hike cycles and the regulator is keen to know how banks are managing such robust growth and profitability,” said a CEO of a private bank who didn’t want to be named.
“Though on a low base, most banks have seen a rapid growth in their unsecured retail and MSME books. This is something that the RBI isn’t comfortable with and is gauging how long this trend can continue without damaging the asset quality of banks”.
On April 30, businessline reported that the RBI has asked banks to go slow on unsecured loans which historically have been 2–2.5 per cent credit loss business. However, in the current cycle, credit losses in this portfolio have been contained at a per cent or lesser for most banks.
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