RBI Moves To Tackle Speculative Trades Linked With Unsecured Loans: Here's All About It

An unusual surge in specific activities such as cryptocurrency trades, equity derivatives, and online gaming, including teen patti, rummy, ludo, and cricket-related games, in the past 12 months has caught the attention of the Reserve Bank of India (RBI).

The central bank may be investigating the use of unsecured loans for these activities.

According to a report from The Hindu Buisnessline, a source familiar with the matter mentioned, "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."

The RBI's recent decision to increase risk weights in unsecured loans in November is seen by some as a move to curb speculative trades linked to such activities.

A senior official expressed concern about borrowers using bank loans for futures and options (F&O) trades and cryptocurrency transactions, as the repayment capacity in such cases becomes dependent on luck, posing a potential risk to the financial system.

The recently published Financial Stability Report by the RBI indicates a significant increase in equity derivatives trading volumes, with a surge in individual investors' participation.

The report also highlights the attractiveness of options due to embedded leverage. The number of active derivatives traders has increased nearly sixfold from 2018-19 levels to 6.9 million by October-end.

The derivative market in India, according to a report by Axis Mutual Fund, is over 400 times the cash market in notional terms, raising concerns about market development.

The Indian cryptocurrency market witnessed a 160 per cent surge in trading, and the online gaming industry in India reached Rs 16,428 crore in 2023, according to reports by CoinSwitch and EY, respectively.

RBI began noting the increasing trend in demand for personal loans from mid-2022, and by March 2023, the segment was closely monitored for trends in demand and borrower patterns.

About 30–40 per cent of trades in speculative segments are estimated to have been conducted using borrowed money.

Following restrictions on unsecured loans, several digital lenders have reduced their business in the small-ticket personal loan category.

A TransUnion CIBIL report indicates a rise in defaulters in the personal loan segment to 32.9 per cent in April 2023, compared to 31.4 per cent a year ago.