“At the current juncture there may not be any immediate cause for worry but to remain on top of things, banks and NBFCs would be well advised to take certain precautionary measures,” he said at the annual FICCI-IBA banking conference, referring to non-banking financial companies.
He listed four areas where the financial sector needs to be careful. “First, while credit growth is accelerating in the current period, banks and NBFCs may take due care to ensure that credit growth at the overall, sectoral and sub-sectoral levels remain sustainable and all forms of exuberance are avoided,” he said.
Banks must strengthen their asset liability management. “In certain cases, we have observed increased reliance on high-cost short-term bulk deposits while the tenure of the loans, both in retail and corporate loans, is getting elongated,” he said.
“NBFCs, on their part, should focus on broad basing their funding sources and reducing over-dependence on bank funding,” said Das.
He asked microfinance institutions to refrain from charging usurious interest rates. “Though the interest rates are deregulated, certain NBFCs-MFIs appear to be enjoying relatively higher net interest margins. It is indeed for microfinance lenders to ensure that the flexibility provided to them in setting interest rates is used judiciously. They are expected to ensure that interest rates are transparent and not usurious.”
Das’s fourth point was about algorithm-based lending models: The fintech sector should test them periodically and watch out for risks.
“An important aspect that merits attention in this context is with regard to model-based lending through analytics. Banks and NBFCs need to be careful in relying solely on pre-set algorithms as assumptions based on which the models are operated. These models should be robust and tested and re-tested periodically,” he said.