Risks in unsecured debt, reckless financialization

India's rapid digital financial expansion is fueling both opportunity and risk, with rising unsecured debt and speculative trading posing new challenges for the financial system, Reserve Bank of India (RBI) deputy governor M. Rajeshwar Rao warned.

- Anshika Kayastha

While technology has deepened financial inclusion, Rao said, concerns have emerged over unchecked borrowing and speculative investments that could leave individuals and institutions vulnerable.

"(Just as) the presence of too much light can lead to blindness, we must be aware of the risk of reckless financialization," Rao said at the annual conference on macroeconomics, banking, and finance conducted by Indian Institute of Management Kozhikode and the National Stock Exchange.

"(The) temptation of short-term gains can easily overshadow long-term financial security."

Financial literacy is crucial in protecting consumers from fraud, but regulation plays an even bigger role in preventing systemic failures, he said. "The cost of restoring financial stability in such scenarios is often much higher than the cost of preventive regulation."