In a recent report, the Reserve Bank of India (RBI) revealed that the substantial surge in credit flows has not led to stress accumulation within the retail credit segment. While certain sub-segments in the unsecured space exhibited signs of weakness, the overall scenario has remained stable. The report emphasizes the need for vigilant monitoring by financial service providers, highlighting the positive impact of recent proactive macro-prudential measures implemented by the RBI to maintain financial stability.
The Indian economy has experienced a notable surge in retail credit growth, propelled by a well-diversified customer base with favorable financial health conditions. The study titled “Dynamics of Credit Growth in the Retail Segment: Risk and Stability Concerns” indicates a statistically significant increase in credit growth for most retail credit products in the post-Covid-19 period compared to the pre-Covid-19 period. Despite this growth, stress levels in retail portfolios, as indicated by Gross Non-Performing Asset (NPA) ratios and slippage ratios, have seen a decline post-Covid-19.
While the majority of retail credit products showcased positive trends, credit card and vehicle loan portfolios have experienced a moderate but statistically significant rise in stress levels. This development underscores the importance for banks and financial service providers to maintain vigilant oversight of the retail segment. The study encourages policymakers to explore structural prudential tools such as debt-service ratio and debt-to-income ratio for retail borrowers. Additionally, leveraging emerging technology ecosystems, including account aggregators, is suggested to enhance borrower consent processes, fortify credit underwriting practices, and improve monitoring models, ensuring a resilient and responsive financial system.
