Don't be "over-zealous" while lending: S S Mundra to banks

Reserve Bank Deputy Governor S S Mundra on Thursday asked banks to refrain from being "over-zealous" while lending, saying it leads to over-indebtedness of customers, results in default and spoils their credit history.

"One issue that worries me is of the newly inducted customers becoming over-indebted. I say this because if so many players focus at the same customer base with aggressive targeting and diluted appraisal, the risks would be many and the resultant repayment default can lead to a permanent ruining of the credit history of the individual and no bank would be willing to lend to him or her again," Mundra said at an event here today.

"So, it is my appeal to the banking community and other stakeholders that they should not be over-zealous in setting such targets," he said.

He raised concerns over limited use of direct benefit transfer (DBT) schemes and said there was an urgent need to widen its scope to push financial inclusion in the country.

Mundra said DBT is presently taking place only in a limited number of districts across the country and in few of all the identified schemes of the Centre as well in the states.

"To provide a fillip to financial inclusion, it is imperative that all efforts are made to ensure that direct benefit transfer starts in all identified schemes," the Deputy Governor said.

He said DBT is a game changer for the utilisation of a newly opened basic bank account, minimise leakages and save huge administrative costs incurred by the Centre and the states for disbursements of social welfare benefits.

Mundra said given the country's size, it still has a long way to go for financial inclusion. He said RBI has set up an expert committee for the medium term path for financial inclusion under its executive director Deepak Mohanty.

"The committee has reviewed the current status of financial inclusion, international best practices and has made 80 actionable recommendations," he said.

He said RBI is working in those areas where action is needed on its part and has referred some areas to the government where action is required on their part.

The Deputy Governor said technology and connectivity issues are some of the challenges in financial inclusion.

"While banks have innovated on technology and are using the services of banking correspondents, there are issues related to technology infrastructure, including poor network connectivity in remote and rural areas," he said.

Physical infrastructure bottlenecks like power failure and poor road connectivity impede financial services in remote areas, he said.