NBFC: Swaminathan said that the risks for some products or areas like unsecured loans are very high and it is not sustainable in the long run!

NBFC: Swaminathan said that the risks for some products or areas like unsecured loans are very high and it is not sustainable in the long run. He said, 'It seems that most NBFCs want to do the same thing.

RBI To NBFC: NBFCs have been warned by Reserve Bank of India (RBI) Deputy Governor Swaminathan J. He said that dependence on loans considered unsafe i.e. without guarantee and capital market financing can become a problem for NBFCs in the long run. Swaminathan, while addressing heads of assurance functions (compliance, risk, and internal audit) of NBFCs at an RBI event, also warned about over-reliance on 'algorithms' for taking loan decisions.

Said to be a big risk for the financial system

He also put forward RBI's disappointment over 'ignoring the rules'. He called it a big risk for the financial system. Swaminathan said that the risks for some products or areas like unsecured loans are very high and it is not sustainable in the long run. He said, 'It seems that most NBFCs want to do the same thing. Such as retail unsecured loans, 'top up' loans, or capital market financing. Excessive dependence on such products can create problems later.

Taking steps to increase the books of accounts,

Swaminathan said on the issue of giving 'algorithm' based loans that many institutions are turning to rule-based 'credit' to increase the books of accounts rapidly. He said, 'Although automation can increase efficiency, NBFCs should not tie themselves to such models. It is important to recognize that rules-based lending systems are only as effective as the data and criteria on which they are built.

Swaminathan said, 'Especially in emerging market conditions, excessive reliance on historical data or algorithms can lead to errors in loan valuation.' He asked NBFCs to maintain a clear view of their capabilities and limitations and focus on monitoring mechanisms. He also asked NBFCs to pay attention to cyber security risks.