RBI Governor Shaktikanta Das has indicated that the Reserve Bank of India is closely scrutinizing the risks associated with model-based algorithm lending, particularly in the context of unsecured loans. He noted that while the banking sector currently remains resilient and robust, there is a need to moderate the exuberance in unsecured loans.
The Governor highlighted that some financial institutions, including banks and NBFCs, lacked the bandwidth to diligently examine loan proposals, especially those relying on model-based lending. Das stressed the importance of robust models and algorithms, emphasizing that banks and financial entities should analyze and address possible risks associated with their lending practices.
Regarding the recent surge in unsecured loans, Das mentioned the exuberance and fear of missing out (FOMO) that led to a rush in capitalizing on the opportunity. He expressed concerns about the sustainability of such loan growth if not moderated. The governor emphasized that the responsibility lies with banks and NBFCs to assess the robustness of their models and algorithms, considering the changing ground realities.
On the topic of cryptocurrency, Das reiterated the Reserve Bank of India’s (RBI) unchanged position, regardless of global developments. He highlighted the speculative nature of cryptocurrencies, warning about the risks associated with investing in them. Das drew parallels with historical examples like the tulip mania in the Netherlands, suggesting that the world, particularly emerging market economies, cannot afford a crypto mania with potentially similar outcomes.
Regarding the mutual fund industry’s overseas investment limit, Das acknowledged that the industry has been requesting an increase from the existing $7 billion limit set in 2008. However, he indicated that the timing of such a decision would depend on various factors, including the recent pressures on the rupee exchange rate and the broader economic context.
Governor Shaktikanta Das outlined the RBI’s concerns regarding model-based algorithm lending and the need for financial institutions to assess and address potential risks. He reiterated the central bank’s cautious stance on cryptocurrencies, emphasizing the speculative nature and associated risks. Additionally, Das acknowledged the mutual fund industry’s request for an increase in the overseas investment limit, hinting that the decision would depend on the right timing in the economic context.