Most people are borrowing to finance their consumption needs. While banks and financial institutions increased their focus on retail lending in the last decade amid a softening interest-rate regime, the present era of rising rates may throw some challenges. NBFCs may find it difficult to replicate past growth, and borrowers will now be laden with high-cost debt.
“In recent years, Indian banks appear to have displayed ‘herding behaviour’ in diverting lending away from the industrial sector towards retail loans. Empirical evidence suggests that a build-up of concentration in retail loans may become a source of systemic risk,” says a December 27 RBI report on the Indian banking industry. To put this statement into perspective — the average Indian is now borrowing to finance his consumption needs.
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