RBI Deputy Governor Sounds Alarm on Excessive Borrowing and Derivative Market Risks
Reserve Bank of India (RBI) Deputy Governor Rajeshwar Rao has expressed concerns over the rising trend of excessive borrowing, particularly in unsecured loans, and the growing euphoria surrounding derivative markets.
Mumbai: Reserve Bank of India (RBI) Deputy Governor Rajeshwar Rao has expressed concerns over the rising trend of excessive borrowing, particularly in unsecured loans, and the growing euphoria surrounding derivative markets. Rao highlighted these issues on Friday at a conference organized by the Indian Institute of Management Kozhikode and the National Stock Exchange.
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Warning Against Short-Term Financial Risks
Speaking at the event, Deputy Governor Rao pointed out the risks associated with the growing trend of excessive borrowing in unsecured segments and the speculative behavior in derivative capital markets. He emphasized that the temptation of short-term gains can easily overshadow the long-term financial security of individuals.
“The absence of financial literacy can lead people to fall prey to unscrupulous players, which erodes trust in the financial system,” Rao stated, stressing the importance of educating customers on financial matters.
The Role of Financial Institutions in Customer Education
Rao further mentioned that while the RBI, along with other financial regulators, is taking steps to raise customer awareness, financial sector entities must also shoulder the responsibility of ensuring customers fully understand the risks associated with leveraged products and speculative investing.
The Risks of Technology and Digital Innovations
Rao also acknowledged the role of technology and digital innovations in driving financial inclusion and providing broader access to financial services. However, he cautioned that these advancements come with the risk of over-leveraging and excessive exposure, which can create significant vulnerabilities for individuals and the financial system as a whole.
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He aptly summed up the situation by saying, “As it is said that the presence of too much light can also lead to blindness, we must be aware of the risk of reckless financialisation.”
The RBI Deputy Governor’s remarks serve as a timely reminder for both investors and financial institutions about the importance of responsible borrowing and investing practices. With growing concerns over financial risks, experts call for greater financial literacy and caution to prevent the potential negative impact on individuals and the broader economy.
