RBI Deputy Governor Sees Concerns In Excessive Borrowing In Unsecured Loans

Excessive borrowing in unsecured loans and the euphoria in derivative capital markets is a cause for concern, Reserve Bank of India Deputy Governor Rajeshwar Rao said.

"Off late, we have seen some concerns of excessive borrowing in unsecured segment and from derivative euphoria in the capital markets," Rao said, while delivering a speech at the Indian Institute of Management Kozhikode-National Stock Exchange's 2nd Annual Conference on Macroeconomics, Banking and Finance at Mumbai.

The temptation of short-term gains can easily overshadow the long-term financial security of individuals, Rao said. Financial entities have a duty to ensure that customers fully understand the risks associated with leveraged products and speculative investing, he added.

While technology and digital innovations are driving financial inclusion and access, they also bring with them the risk of excessive exposure and over-leveraging, which can create significant vulnerabilities for both individuals and the broader financial system, the deputy governor said.

"...As it is said that presence of too much light can also lead to blindness, we must be aware of the risk of reckless financialisation," he said.

This has come as State Bank of India Chairman, CS Setty, said that concerns in unsecured loan growth has bottomed out, at the NDTV Profit Conclave earlier this week.

Financial inclusion goes beyond opening accounts, as it requires meaningful engagement with financial services, Rao said.

Prime Minister Jan Dhan Yojana has ensured that 80% of adults now have a bank account. Till date, 54.84 crore bank accounts have been opened under the scheme, with a total balance of Rs 2.45 lakh crore in the accounts, he said.

However, a bank account should serve as the entry point for individuals to access a broader suite of financial products, including credit, insurance, pensions, and investment opportunities.

Without this deeper engagement, financial inclusion remains superficial, and the true benefits of a formal financial system do not reach every individual or business.

One of the significant gaps lies in access to credit, particularly for the informal sector of the economy. Traditional credit models, which rely heavily on collateral-based lending, fail to accommodate first-time borrowers and small businesses with limited credit histories, Rao said.