Unusually high spurt in certain select activities such as crypto currency trades, equity derivatives and online gaming such as teen patti, rummy, ludo and cricket related games over the last 12 months may have alerted the Reserve Bank of India to look into unsecured loans being used for these activities.

“A lot of these (trades) are done by people less than 40 years of age, who may be relying on borrowed money to engage in these activities,” said a person directly aware of the matter.

Sources link the Reserve Bank of India’s recent move to increase risk weights in unsecured loans in November as a step towards curbing such speculative trades. “While in certain pockets the over-indebtedness of some borrower categories is increasing, what could be more concerning is availing bank loans to deploy it in F&O trades and crypto trades. Repayment capacity of the borrower in such instances entirely becomes a game of luck and this could become hazardous for the wellbeing of the system,” said a senior official with knowledge of the matter.

Numbers speak 

Recently published Financial Stability Report by RBI notes “equity derivatives trading volumes are increasing, with a sharp rise in individual investors’ participation in that segment. The attractiveness of options as derivatives lies in the embedded leverage, which allows traders to take exposure with little upfront cash. The number of active derivatives traders went up nearly six times from 2018-19 levels to 6.9 million by October-end”. 

Reiterating this, a report titled ‘Gamification of Indian Equities’ by Axis Mutual Fund also highlighted that the derivative market (in India), in notional terms, is over 400 times the cash market, and that is not a healthy way of developing the market.

Likewise, the Indian crypto currency market witnessed 160 per cent surge trading as per a report by CoinSwitch and a recent report by EY pegged India’s online gaming at ₹16,428 crore in 2023.

In fact, at various forums Shaktikanta Das, Governor, RBI, has sounded off that with end use monitoring not possible with unsecured loans, it poses a risk to the system.

Cautious stance 

According to sources, from mid-2022 the RBI started taking note of an increasing trend in demand for personal loans and by March 2023 the segment was being closely monitored for trends in demand and borrower patterns. “Some of speculative trade data when correlated with trend in demand for unsecured loans supported the inference that speculative trading may have been fuelled using borrowed money,” said another senior official. “Nearly 30–40 per cent of trades in these speculative segments are likely to have been channelised through borrowed money”.

Post the strictures on unsecured loans, many digital lenders have scaled down their business in the small ticket personal category. “This (less than ₹50,000 personal loans) needs monitoring and could have fuelled these speculative activities,” said a senior banker.

According to TransUnion CIBIL report, the number of defaulters in the personal loan segment rose to 32.9 per cent in April 2023 against 31.4 per cent a year-ago. Email sent to RBI seeking confirmation remained unanswered till press time.

What’s comforting for now is that the small ticket personal loans segment is less than five per cent of the total personal loans segment, while unsecured loans account for 34 per cent of total retail loans.