New guidelines to limit loans to well-connected individuals

The RBI will enact new rules that forbid lending to organisations with sway over lending institutions in an effort to reduce quid pro quo lending. To make sure loan aggregators act in the best interests of borrowers by providing them with options, RBI will also update their regulations.

The suggested modifications are a part of the RBI’s continuous examination of prudential standards, which are usually enforced more strictly during times of rapid loan expansion.

To stop the growth of consumer loans, the central bank raised the risk weight for them in the previous month. According to the RBI, these actions are having an impact.

Concerns about situations where there isn’t an arm’s length contact between lenders and borrowers led to the creation of linked lending legislation. The regulator is reviewing its regulations in response to concerns about moral hazards, which have the potential to jeopardise credit management and pricing.

The RBI stated that while regulations are in place, their reach is limited and they must be applied consistently to all companies. Regarding the steps taken to limit personal loans, the RBI stated that these were preventative measures meant to put an end to excess. “An effort was made to put adequate internal measures to ensure that the build-up was avoided, but the market was not responding enough,” stated Swaminathan Janakiraman, deputy governor of the Reserve Bank of India.