The Reserve Bank of India (RBI) today called on banks and non-banking financial companies (NBFCs) to closely monitor the end-use of funds for home equity loans and top-up loans on collateralised products such as gold loans.
“Home equity loans, or top-up housing loans as they are known in India, have been growing at a brisk pace,” RBI Governor Shaktikanta Das said during the bi-monthly policy announcement. “It is noticed that the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being strictly adhered to by certain entities.”
Das expressed concerns that such practices could lead to funds being deployed in unproductive segments or for speculative purposes. The RBI has directed banks and NBFCs to review their practices and take corrective action.
Top-up loans, intended for home improvements, have reportedly been used for expenses like weddings and vacations, prompting the central bank to issue a warning.
Previously, the RBI responded to stress in the unsecured loan segment by increasing risk weights on unsecured consumer credit and bank credit to NBFCs on November 16, 2023. This was done to pre-empt potential risks, resulting in a moderation of consumer loan growth from 23.3% in November 2023 to 13.9% in June 2024. Bank credit to NBFCs declined from 18.5% to 8.2% over the same period, while growth in unsecured personal loans, including credit card debt, remained high at 23.3% in June 2024, down from 34.2% in November 2023.
