Regulatory policy in financial sector needs to strike balance between stability and objectives of fostering innovation, efficiency and competition

M Rajeshwar Rao, Deputy Governor, Reserve Bank of India has noted in a speech that regulatory policy in the financial sector must strike an optimal balance between the critical need for stability and objectives of fostering innovation, efficiency, and competition. While it is necessary to minimise systemic risks and protect consumers, it should not discourage creativity, innovation, or healthy market dynamics. On the other hand, an overemphasis on innovation and competition - without adequate safeguards - can lead to financial instability, resource misallocation, and ultimately loss of confidence in the system. Finding this right balance is particularly important for India, given the immense size and heterogeneity of economy, growing aspirations, and substantial investment needs to sustain high growth and development. The regulators must consistently strive to achieve this equilibrium.

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