THE ROLE OF FINANCIAL LEVERAGE AND RISK AVERSION IN INDIAN RISK MANAGEMENT PRACTICES

This study explores the critical relationship between financial leverage and risk aversion and its implications for risk management practices in India’s corporate and financial sectors. As businesses face increasing uncertainty, strategic decisions regarding capital structure and risk-taking behavior have become central to sustainable growth and financial stability. Financial leverage, while offering the potential for higher returns, introduces substantial risk, especially in volatile environments. On the other hand, risk aversion influences how organizations respond to uncertainty, often dictating their borrowing decisions and investment patterns. In the Indian context, these dynamics are shaped by institutional, cultural, and regulatory factors. This paper examines how firms in India balance the benefits of leverage with the need to mitigate financial exposure, particularly across diverse sectors such as banking, MSMEs, infrastructure, and technology. It highlights emerging trends like the adoption of Enterprise Risk Management (ERM), fintech-driven risk tools, and ESG integration. Additionally, it identifies key challenges such as limited credit access, low financial literacy, and macroeconomic volatility. The study concludes with policy recommendations aimed at fostering a more balanced and resilient approach to financial risk management in India.