With the regulatory tightening on several financial entities in recent times, global ratings agency S&P Global has warned that it could drive up the borrowing expenses for banks and shadow lenders in the country.
In a fresh report, S&P analyst Geeta Chugh highlighted that while the Reserve Bank of India's (RBI) measures aim to strengthen oversight and protect customers interests, increased regulatory risk may dampen growth and make it costly for financial institutions to raise funds.
The comments come against the backdrop of the central bank prohibiting IIFL Finance and JM Financial Products from carrying out certain lending activities and directing Paytm Payments Bank to halt onboarding of new customers. This is in addition to the temporary ban imposed on HDFC Bank in 2020 regarding sourcing of credit cards over repeated tech outages.
While welcoming moves to enhance compliance, Chugh noted these actions deviate from traditional nominal penalties and disrupt affected operations. Alongside the already tight liquidity environment, loan growth is projected to slow to 14% next fiscal versus 16% in the current year due to the cumulative impact.
Stricter norms may also upstart caution among technology-led fintech firms and other regulated entities. The hike in risk weights for unsecured loans and credit cards is another step aimed at reining back borrowing.
However, compliance costs are likely to rise for the industry according to S&P, weighing on the ability of smaller players to hold ground in the market. A separate report by the ratings major forecasted Indias economy to expand 6.8% in 2025 helped by domestic consumption and exports bouncing back, but warned restrictive rates and lending curbs could act as drags.
