Finance Minister Nirmala Sitharaman on Thursday virtually endorsed the Reserve Bank of India’s recent clampdown on certain segments of retail loans, noting that the central bank is conscious of where the “thin line” lies.

“RBI has talked about preemptive steps and has been alerting banks to be not too exuberant. RBI is quite conscious of where the thin line lies. They are red lighting it now so that NBFCs and small finance companies don’t go too far in their enthusiasm. 

• Also read: Higher risk weights a pre-emptive measure for sustainable lending: RBI Das

Enthusiasm is good, but sometimes it (such enthusiasm) becomes bit too far for people to digest”, Sitharaman said during a fire side chat at the Digital Acceleration & Transformation Expo (DATE) 2023 in the capital.

As a measure of caution, RBI has alerted banks, NBFCs to ensure they don’t go too far, too soon and face downside risks later, she added.

Sitharam’s remarks comes a day after RBI Governor Shaktikanta Das said at an event in Mumbai that 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.

The central bank had recently increased risk weights for unsecured consumer loans by banks and NBFCs. This was part of the macro prudential measures announced by RBI to ensure sustainability.

• Also read: bl explainer: What RBI’s increase in risk weights mean to the borrower?

These measures are pre-emptive in nature, they are calibrated and targeted, Das said on Wednesday, adding that major growth drivers like housing, vehicle and MSME loans were excluded from these norms.

Financial Inclusion

Asked whether the Government intends to continue its support to financial inclusion schemes so that they remain as low-cost offerings, Sitharaman said, “I don’t want to predict what is going to come through in the  next few budgets”.

The intention of government is to keep that going so that till such time the bulk of those who need to have this advantage given to them do get it, she added.

“It is the bulk which has to get everything which we talk in terms of digital benefits and this has to reach people”, she added.

Account Aggregators

Sitharaman said that ‘Account Aggregators’ (AA) as a concept has not taken off in India in line with the expectations. 

“Considering the time when AA was introduced and kind of awareness that government has tried building around it, I still think that the movement on it is not as much as we want to see. It can be even better. This means awareness building is not adequate or efficient or there has to be more simplification of technology for account aggregators,” Sitharaman said.

The enthusiasm from the bank that is needed has to be accentuated so that it can reach every customer and they can use this platform, she added.

An AA in banking is a system that allows individuals to access and manage their financial data from multiple accounts across various financial institutions through a single platform. 

It acts as an intermediary between users and financial institutions, collecting and consolidating financial information securely. 

In 2016, RBI approved a new class of licensed NBFCs called Account Aggregators to provide such intermediary services based on a customer’s consent.