In the latest episode of the State of the Economy Podcast, businessline‘s Hamsini Karthik engages in a discussion with Rajan Pental, Executive Director at YES BANK, a veteran in the banking sector with a focus on the retail space. The central topic of discussion revolves around the recent developments in risk-weighted assets (RWA) in the banking industry, particularly focusing on the unsecured portfolio. 

He provides valuable insights into the recent changes implemented by the Reserve Bank of India (RBI), specifically the increase in risk weights on consumer durable loans, unsecured personal loans, and credit cards. The regulatory move aims to address potential risks in these segments, signaling a proactive approach to risk management. 

Hamsini raises pertinent questions about the implications of these changes on the lending landscape. She highlights concerns about whether banks will witness lower growth and if they will be able to adjust loan pricing to accommodate the increased capital requirements. The key concern is whether the additional costs will be passed on to borrowers and if there is sufficient demand to absorb these higher costs.

Pental responds by emphasising that the regulator has provided ample time for the industry to prepare for such changes, indicating a cautious approach. He expresses that the inclusion of Non-Banking Financial Companies (NBFCs) in the regulations aligns with the regulator’s goal of maintaining control over certain customer profiles. 

Addressing the issue of pricing, Pental assures that banks are adequately capitalised, and the overall return on capital is well managed. However, he acknowledges the need for adjustments in pricing for specific products with elevated risk weights. He stresses the importance of finding the right balance between interest rates and their impact on consumer demand. 

The conversation delves into the impact on digital lending, where innovative repayment mechanisms such as Equated Daily Installments (EDI) have become popular. He believes that prudent pricing decisions need to be made for each segment, considering the associated risks. He suggests that while there may be adjustments in pricing, the fundamental structure of products is likely to remain. 

As the discussion progresses, the focus shifts to the broader perspective of the lending industry. Pental asserts that the recent years have seen a positive transformation in the banking sector, with a focus on cleaning up and moving towards retail and SME lending. He sees the shift as an opportunity for growth, particularly with more customers entering the organized economy.  Pental provides an optimistic outlook, stating that the Indian economy is thriving with abundant opportunities for banks and NBFCs. He anticipates some temporary disruptions but believes that the long-term impact on growth will be positive.  

(Host: Hamsini Karthik, Producers: Anjana PV, V Nivedita


About the State of the Economy podcast 

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups