Hi everyone,  

Welcome to the 96th edition of The Pattern, a weekly newsletter where we bring you the latest from the worlds of finance, banking, and technology.   

The last seven days have been rather action-packed, so let’s get right into it! 

A report by TransUnion Cibil shows that retail lending growth has slowed across all loan products, while home loans have remained stagnant in the quarter ended September ‘23.

What’s interesting is, though, that the overall balance level of delinquencies has shown improvement across categories, aside from a minor decline in credit cards and personal loans. 

Both developments when taken together point to a much-needed increase in caution from lenders, likely resulting in tighter underwriting processes as well as optimised collection protocols. 

The RBI is sure to be pleased with this data – over the last few months, the regulatory body has been taking measures to curb the unrestrained growth in retail lending. Late last year, it increased risk weights with regard to consumer credit exposure of commercial banks and NBFCs by 25 percentage points to 125%. 

Our CEO Rajat Deshpande offered an in-depth analysis of this move in his newsletter back in November 2023 –  here  it is just in case you missed it. 

It’s safe to assume that the next few months should witness a further moderation in retail lending growth. While new-age NBFCs that focus solely on unsecured personal loans may feel a pinch, I’d say this is an effective check on reckless lending which will ultimately benefit both lenders and borrowers. 

In other news, banks have asked for incentives from the government and the RBI in relation to sustainability-linked loans, specifically relaxed norms on risk-weighted assets for such loans and some dispensation on maintenance of cash reserve ratio for sums disbursed.  

While major foreign banks have worked actively in structuring sustainability-linked loans for corporates in India, this could be a promising sign that India’s banks are now taking their role in tackling environmental challenges more seriously. The request also comes months after the RBI published its Green India report, in which it discussed the role of the financial sector in supporting a sustainable economy, and suggested offering low-cost funds to banks to help lower the cost of borrowing for firms operating in the renewable energy sector. 

I can’t possibly conclude this edition without mentioning the RBI’s recent Monetary Policy Committee meeting – in a significant step towards protecting the interests of small businesses, the regulatory body has asked lenders to provide a key fact statement (KFS) clearly laying out the terms of the loan agreement for retail and MSME borrowers. 

It also kept the repo rate unchanged at 6.5% -- this is the sixth time in a row that the RBI has kept the repo rate unchanged, reinforcing its focus on controlling inflation and boosting growth. This effectively means that interest rates on loans are likely to remain the same (aside from the segments of retail lending that are impacted by the risk weight increase). 

That's all from me for this edition! As always, leaving you with some interesting numbers and reading recommendations from the past week.

Between the digits    

• 25 crores: The number of Indians who have been pulled out of poverty in the last decade, according to FM Nirmala Sitharaman   

• 7%: India’s projected GDP growth in FY25   

• USD 500 Bn: The amount AI and its related fields could potentially contribute to the Indian economy , according to Satya Nadella   

• 4%: The percentage of working age population in India who have a per capita income more than $10,000

  Reading list:  

• Why The Premiumisation Of India’s Economy Is No Reason To Cheer

  
  

• Analysis: India’s 2024 interim budget shows a changing economy

   

• Can India overtake the US economy?

• From Local To Global: The Role of MSMEs in Shaping the Future of Indian Manufacturing

   

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to always get all updates.  

Cheers,

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.