New Delhi, Aug 8 (Reporter) The Central Bank on Thursday forewarned Indian banks of facing “structural Liquidity” issues as the retail customers are moving towards alternative investment avenues that may be more attractive. It is observed that alternative investment avenues are becoming more attractive to retail customers, and banks are facing challenges on the funding front with bank deposits trailing loan growth, RBI Governor Shaktikanta Das said while announcing the Monetary Policy. “As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand. This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues,” he said. Banks may, therefore, focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network. Observing that the sectors in which pre-emptive regulatory measures were announced by the RBI in November last year have shown moderation in credit growth, the bank said that certain segments of personal loans continue to witness high growth. Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from a macro-prudential point of view. It calls for careful assessment and calibration of underwriting standards, as may be required, as well as post-sanction monitoring of such loans, Das added. Das also drew attention from the banking sector to another potential risk factor, which is home equity loans, or top-up housing loans, as they are called in India, which have been growing at a brisk pace. Banks and NBFCs have also been offering top-up loans on other collateralised loans like gold loans. It is noticed that the regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds are not being “strictly adhered” to by certain entities. “I repeat certain entities," he said. Such practices may lead to loaned funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would, therefore, be well-advised to review such practices and take remedial action. Recalling the recent episode of an IT outage globally, which affected businesses in many countries, he said such incidents demonstrated how a minor technical change, if it goes haywire, can wreak havoc on a global scale. It also showed the fast-growing dependence on big- tech and third-party technology solution providers. In this background, it is necessary that banks and financial institutions build appropriate risk management frameworks in their IT, Cyber security and third-party outsourcing arrangements to maintain operational resilience. The Reserve Bank has time and again emphasised the importance of robust business continuity plans (BCP) to deal with such incidents, Das added...////...