Foreign and domestic equity investors should scale down their expectations on returns from capital.

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Otherwise, there will be imbalances that would create problems, said KC Chakrabarthy, deputy governor of the Reserve Bank of India.

According to him, recent experiences have proved that resolving a financial crisis is complex and costly. The best thing can be preventing a crisis from happening. However, no financial system can be immune to episodes of financial instability from time to time, he said.

He spoke on ‘Crisis Preparedness in International Markets’ on Monday while addressing the representatives of global banking regulators in Hyderabad.

Pointing out that Sensex cannot give 30 per cent returns regularly, he said returns on debt were falling and when the overall return on debt came down, the return on equity has to come down. “If it is not, it would create imbalances and might lead to financial instabilities,” he said.

The imbalances pertaining to returns on debt and equity capital were still unresolved in many economies, he said adding that this left scope for financial engineers to develop complex financial products.

Apart from this, the imbalance pertaining to productivity and efficiency of capital is also not resolved by many economies. “When the rich borrow, the money is utilised for consumption and speculative purpose,” he sai­d, stressing the need to impr­ove productivity and efficiency of the financial system.