RBI DG raises concerns on 'excessive' unsecured borrowing, derivative euphoria in markets

Rao further said that RBI along with other financial sector regulators is taking progressive steps to educate the customers

The Reserve Bank of India's (RBI) Deputy Governor M. Rajeshwar Rao on February 21 showed concerns on excessive borrowing in unsecured segment and from derivative euphoria in the capital markets.

"Of late we have seen some concerns of excessive borrowing in unsecured segment and from derivative euphoria in the capital markets," said Rao said while addressing at IIM Kozhikode -NSE 2nd Annual Conference on macroeconomics, banking and finance.

Rao said that financial institutions have to ensure customers understand the risk associated with the leveraged products and speculating investing.

"Financial entities have a duty to ensure that the customers fully understand the risks associated with the leveraged products and also speculative investing," Rao said.

Rao further said that RBI along with other financial sector regulators is taking progressive steps to educate the customers. Also, financial sector entities also have to take responsibility to educate customers.

"The temptation of short-term gains can easily overshadow the long-term financial security of individuals," Rao said.

Increased financial literacy will help to increase trust in the sector and its participants whose benefits will accrue to the entities themselves. While educating customers helps protect them from fraudulent practices, regulation plays a critical role in maintaining stability and preventing systemic failure, he added.

Further, Rao said that regulated entities must develop the necessary capabilities to implement and comply with the evolving regulations.

Also, these entities must invest in robust governance frameworks and risk management protocol to ensure compliance and customer appropriateness.

On the Unified Lending Interface (ULI), Rao said that as of December 6, 2024, over 6 lakh loans amounting to Rs 27,000 crores including 1.6 lakh loans amounting to Rs 14,500 crore to MSMEs have been dispersed using the ULI platform.

Last month, RBI's chief general manger (CGM) Suvendu Pati had said that ULI has has disbursed 7.5 lakh loans worth Rs 38,000 crore so far.