The recent surge in credit flows has not resulted in stress build up in the retail credit segment, a latest update from the Reserve Bank of India stated. The update, titled Dynamics of Credit Growth in the Retail Segment: Risk and Stability Concerns by Vijay Singh Shekhawat, Avdhesh Kumar Shukla, ACV Subrahmanyam and Jugnu Ansari analyses retail credit flows and asset quality dynamics therein across the supervised entities on an inter-temporal basis using supervisory data.

It noted that the post-pandemic behaviour of the retail credit portfolio has improved both in terms of growth and risk parameters. Empirical tests indicate a significant improvement in asset quality parameters coupled with broad based growth across retail loan segments.

The recent surge in credit flows has not resulted in stress build up in the retail credit segment, albeit a few sub-segments in the unsecured space show signs of weakness, warranting close monitoring by the financial service providers. As supervised entities are increasingly focused on retail credit, the recent pre-emptive macroprudential measures by the Reserve Bank augur well for the financial stability both at systemic and entity-level.

The policymakers may also consider using structural prudential tools, viz., debt-service ratio and debt-to-income ratio of retail borrowers.

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