Will uncontrolled gold and personal loans affect India's financial stability?

Gold loans given by non-banking finance companies grew by 26 per cent year on year during the first quarter of the current fiscal year 2024-25. An amount of Rs792 billion was sanctioned according to the Finance Industry Development Council. This increase has been despite stiff competition from banks, which are also sanctioning gold loans where the growth rate has been 41 per cent year-on-year. The reason for this phenomenal growth is that gold loans are easy to access and are resorted to by individuals who are unable to tap into other sources of funding.

The regulator has therefore taken steps by asking lenders, both banks and financial institutions, to fix gaps in accounting for these loans. This is done to avoid a buildup in the future of bad debts on their books. Directions have been issued to banks and non-banking finance companies to review their gold loan policies and procedures. If any deficiencies are found, they need to be rectified within three months. These guidelines have been issued based on a review undertaken by the regulator that uncovered irregular practices, such as concealing bad loans as well as ever greening such loans through top-ups and roll-overs without proper appraisal and applying prudential norms. As far as personal loans are concerned, they have increased at a comfortable rate and therefore there is no cause for any concern.

Several multinational companies have set up research and development centres in India which also act as global capability centres. Research funding through grants is being encouraged and, with this objective in mind, the GST Council last month announced total exemption of GST for research funding where the grants are given to institutions established under central and state laws as well as institutions which enjoy income-tax exemption.

This has been done to incentivise research funding which would ensure development of thousand of patents. Research will also help the agricultural sector as it will lead to creation of climate-resistant seed varieties. Exemption of GST on research and development grants to universities and educational institutions will see more patent registrations in India.

Further, the government has commissioned three indigenously developed supercomputing systems to facilitate scientific research. Additionally, two high performance computing systems have been designed for weather and climate research. The three supercomputers worth around Rs13 billion have been developed under the National Supercomputing Mission to facilitate pioneering and advanced scientific research in areas such as physics, cosmology and earth sciences.

The government has legislated through the Data Protection Act and evolved a National Cyber Security Strategy for creating a safe digital ecosystem. However, the Government feels that global standards should be framed for promoting an ethical Artificial Intelligence platform. At the World Telecommunication Standardisation Assembly meeting this month, the Indian Prime Minister emphasised the need for a global framework which would lay down guidelines for digital technology. The reason is that all digital tools and applications are available today without restrictions and transcend the boundaries of countries. Hence, without a global framework, no single country can protect its citizens from cyber threats, necessitating a united approach by all countries. Even the governor of the Reserve Bank of India has cautioned that the unchecked use of artificial intelligence and machine learning poses a risk of systemic instability and vulnerability to cyber attacks. Hence, he has called upon banks and other financial institutions to put in place adequate risk mitigation measures to safeguard against risks of cyber attacks.

The writer is a practising lawyer, specialising in corporate and tax laws of India.