Key Points
RBI flags risks of unsecured loans and derivative market euphoria
Financial entities must educate customers on investment risks
Technology brings financial inclusion but also potential vulnerabilities
Excessive financialisation can lead to systemic risks
"Of late, we have seen some concerns of excessive borrowing in unsecured segment and from derivative euphoria in the capital markets," Rao said at a conference, jointly organised by the Indian Institute of Management Kozhikode and the National Stock Exchange, here.
The temptation of short-term gains can easily overshadow the long-term financial security of individuals, he stressed.
While the RBI along with other financial sector regulators is taking steps to educate the customers, financial sector entities also need to shoulder part of the responsibility, the Deputy Governor pointed out.
The absence of financial literacy leads people to fall prey to unscrupulous players which erodes the trust of the people in the system, he observed.
Financial entities have a duty to ensure that customers fully understand the risks associated with leveraged products and speculative investing, Rao pointed out.
While technology and digital innovations are driving financial inclusion and access, they also bring with them the risk of excessive exposure and over-leveraging, which can create significant vulnerabilities for both individuals and the broader financial system, he said.
"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," he remarked.
