CEA asks finance industry to observe self-restraint

Nageswaran said that he met the Sebi brass on Tuesday, and was told about offers made to grow money quickly on a small base through trading in the markets. Offers are made to turn Rs 5,000 into Rs 6,000 or even Rs 12,000 sometimes within a day, Nageswaran said

Mumbai: Chief Economic Advisor V Anantha Nageswaran on Wednesday asked the finance industry to observe self-restraint and stop predatory practices, misselling of products and data misuse.

The academic-turned-advisor said regulations can only work to an extent to stop robberies, but crime can be curtailed only when the robber chooses to reform. "Misuse of data, misselling, predatory practices etc have to be guarded against. Self-policing is the best policing," Nageswaran said while speaking at the Samvaad event here.

"We've also seen even among established financial institutions concerns about the collection practices to those who borrow, and also those who are near to them," he added. It can be noted that in the recent past, entities like Mahindra Finance have faced severe reprimand for their loan collection strategies after a woman was crushed under a tractor being taken away by recovery agents, while digital lending companies continue to be a big source of concern.

Nageswaran said that he met the Sebi brass on Tuesday, and was told about offers made to grow money quickly on a small base through trading in the markets. Offers are made to turn Rs 5,000 into Rs 6,000 or even Rs 12,000 sometimes within a day, Nageswaran said, maintaining that such promises and expectations are unsustainable. Given the access financial institutions have to so much data about an individual's habits, it is very important for companies to exercise "self-restraint", the CEA said, adding that the mindset needs to be stronger for longer, rather than quick and easy profits.

He hoped that given the access to data, and the low credit penetration where only a fifth of the population has a history of borrowing, financial institutions evolve a judgement to provide credit. This is essential because India is now waiting for another round of credit expansion, where the doubling or tripling of overall credit's share to GDP will be faster than the previous cycles, Nageswaran said.

Speaking to the event on account aggregators, the CEA said the newly launched platform will help expand the credit reach but underlined to deepen penetration in a manner where the entire operation is "sustainable, feasible and viable". "If India has to achieve a sustained growth rate of more than 6 per cent per annum, we need a financial cycle that doesn't end within half a decade," he said, listing out challenges faced on this front in the recent past. Whenever the country has witnessed a credit cycle, there is "overheating, excess lending, excess borrowing, non-performing assets, recapitalisation and write-offs,” the CEA said.

The high growth in the first decade of this century had led many to feel that India will be the next engine of global growth and replace China, which had occupied the position by growing for 9 per cent per annum for three decades, he added. However, the expectation could not be fulfilled because of the 2008 global financial crisis and excesses in lending, which led to corrections like the financial sector and corporate balance sheet repairs.