The Reserve Bank of India’s cautionary remarks on unsecured lending by banks has found support in State Bank of India chairman Dinesh Khara.

Khara, who leads the country’s largest bank, said the recent clampdown on unsecured loans is the right move to curtail “unhealthy growth” in borrowing by individuals.

Strong expansion of retail loans, at an annual rate of about 30%, was a sign of heating up, Khara said in a Bloomberg Television interview at Davos on Tuesday. 

With banks going aggressive on retail loans which has seen a surge in demand for the last few years, the RBI has expressed concerns over a potential buildup of risks in the economy. In fact, unsecured lending has been rising almost twice as fast as overall credit. This has made the RBI in November ask banks to increase buffers for some consumer loans. 

“I am sure it will go a long way in terms of bringing orderliness and ensure the growth will remain healthy,” Khara said in the interview. Retail credit expansion of about 14% to 15% would be “good growth,” he added.  

While banks including SBI have insisted their unsecured loan books are of high quality and low risk, most of them are dialing back the growth of such portfolios. Lenders have also been trying to keep up with the credit growth by seeking more deposits.

Meanwhile, SBI is evaluating if it needs more capital, Khara said in the interview. It’s exploring raising capital through additional Tier-1 bonds after recently issuing Tier II bonds. 

“We are actually mindful of exploiting all possible channels to ensure capital is not falling short and we should always be able to support the growth,” Khara said.

Meanwhile, in an interview to CNBC-TV18, Khara has said that RBI could begin interest rate cuts from the third quarter of the calendar year 2024.

“What I expect is that going forward, there should be better situations to prevail, and once the US Federal reserve starts cutting interest rates, not before the middle of this calendar year, but maybe in the third quarter, we expect that there could be some interest rate cut which we might get to see,” he said.

Speaking to the television news channel on the sidelines of the Davos World Economic Forum (WEF) 2024, Khara said the RBI has asked banks to keep a check on their credit-deposit (CD) ratio to prevent overheating of the system. SBI currently has a CD ratio of 66-67% on its domestic book and around 70% on its international book. So, there is a lot of headroom available for growth, he said.