RBI Governor Warns of Private Credit Market Risks

RBI Governor Shaktikanta Das warns of the risks associated with the rapid, low-regulation growth of private credit markets, stressing their potential to destabilize financial systems, especially amid rising interest rates. He also highlights India's advancements in digital infrastructure and its impact on financial products and cross-border payments.

RBI Governor Shaktikanta Das highlighted significant concerns over the burgeoning private credit market during his address at the Reserve Bank of India's 90th High-Level Conference in New Delhi. The rapid expansion of these markets, coupled with minimal regulation, poses a considerable threat to the financial system's stability, he warned.

The governor pointed to the inherent risks of private credit markets, which have yet to be tested in an economic downturn. He cited rising interest rates as a primary concern, driving up debt servicing costs, stirring market volatility, and jeopardizing asset quality. According to Das, overvalued assets could spark widespread market contagion and heightened financial instability.

Das also cautioned that a downturn in commercial real estate prices might pressure small and medium-sized banks, which have substantial exposure to this sector. He emphasized the interconnectedness between commercial real estate, non-bank financial institutions, and the broader banking system as a risk factor. Furthermore, he discussed the evolving role of central banking in shaping monetary policy, maintaining financial stability, and integrating new technologies amid global financial uncertainties. On a brighter note, Das praised India's digital advances, which position the nation prominently in cross-border payments and the burgeoning startup ecosystem.

(With inputs from agencies.)