A ritualistic risk dance begins as the political stakes start to rise

RBIs belated tightening of personal-loan rules suggests that regulatory checks remain tied to the Indian electoral calendar

- RAJRISHI SINGHAL

There are no prizes for guessing when it's election time in India; the high-decibel festive atmosphere accompanying pre-election campaigning makes sure that polls never go unnoticed. But there is another pre-election event that is also a clear giveaway: a sudden tightening of rules in the financial markets. Nobody wants a scam or payments crisis before key elections, especially one that may spring up in capital markets and traverse the financial system.

The recent risk-mitigation measures announced by the Reserve Bank of India (RBI), imposing constraints on the growing volume of loans given to individuals, probably falls in the same category.

RBI's rear-guard action is aimed at minimizing risk from burgeoning unsecured personal loans advanced by both banks and non-banking financial companies (NBFCs). However, this cautionary move also seems counter-intuitive, given that RBI's recent economic bulletins have been exceedingly bullish about the economy's near-term growth prospects but completely silent about any potential risks.

So, under which rock did the central bank discover these hidden risks? Read on.

The Indian central bank has increased the risk weightage for personal loans-outstanding as well as new loans-advanced by banks and NBFCs.