Bankable | In the latest episode, Axis Bank's Rajiv Anand answers whether regulatory tightening is a cause of concern and how it will impact the banks and the economy.
Watch the whole conversation: https://bit.ly/3tBkmrb
Watch the whole conversation: https://bit.ly/3tBkmrb
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TVTranscript
00:00 We've seen monetary tightening start May last year and then still continue.
00:04 But regulatory tightening over the last two months, you've had action on unsecured loans
00:08 and you've had action recently on the alternative investment fund situation.
00:14 Is the regulator tightening screws for a better system or are they seeing something which
00:20 is probably worrying them and they see a need for this?
00:25 First and foremost, if you look at on the unsecured side, the increase in risk weights
00:31 is actually just a normalization.
00:33 You know, through COVID, they cut the risk weights.
00:37 It used to be 125, they've just brought it back at this point in time.
00:42 So therefore, it is a normalization at one level.
00:45 And I think it also shows confidence of the RBI in the underlying economic situation that
00:53 the economy will quite comfortably be able to absorb the higher risk weights at this
00:59 point in time, because the point I'm making there is as soon as you start to increase
01:03 these weights, it is inevitable that cost of money to adjust for that, the capital charge
01:10 will automatically start to go up.
01:13 And I think to that extent, RBI is quite comfortable.
01:18 I think RBI is concerned about certain pockets of perhaps risk playing out.
01:28 And so therefore, on the unsecured side and within that, lower ticket loans is something
01:38 that they are certainly concerned about and counter cyclical measures like this is always
01:45 welcome.
01:48 Similarly, and I think you spoke about the AIF issue as well.
01:53 And I think they are trying to contain the whole sort of evergreening issue that perhaps
02:01 they have seen in few cases, and therefore, you know, trying to address, don't want to
02:08 leave the door open for such practices.
02:11 And I think I like the proactivity that RBI has shown on each of these measures to be
02:18 able to nip some of these issues at the bud before they become potentially systemic.
02:23 I mean, you can always argue that, hey, why did RBI act so soon?
02:26 Is the problem that big that they need to come in so quickly?
02:31 But I think it is better for them to nip many of these things at the bud rather than become
02:36 system systemic issues and perhaps then some of the measures that they would need to bring
02:44 could have even more impact and have potentially destabilizing impact either for the markets
02:49 or for the economy.
02:50 Okay.
02:50 Thank you.
02:51 (upbeat music)
02:53 [BLANK_AUDIO]