RBI Governor Warns Over-reliance on AI Could Threaten Financial Stability

RBI Governor Warns Over-reliance on AI Could Threaten Financial Stability

Reserve Bank of India (RBI) Governor Shaktikanta Das has cautioned that while artificial intelligence (AI) and machine learning (ML) are transforming the financial sector, over-reliance on these technologies could pose serious risks to financial stability. Speaking at an event in New Delhi, Das highlighted the potential systemic risks associated with AI, particularly when a few tech companies dominate the market, leading to concentration risks. He warned that disruptions in AI systems could spread across the entire financial sector.

The governor also pointed out that AI's opaque algorithms make it difficult to audit decisions, increasing the risk of unpredictable market consequences. He stressed the need for banks and financial institutions to adopt risk mitigation measures to manage these vulnerabilities, such as cyberattacks and data breaches, which AI can exacerbate. "Banks must leverage AI and BigTech but not allow them to dominate their operations," Das said.

Das further emphasized the potential to expand India’s real-time gross settlement (RTGS) system to major trade currencies like the US dollar, euro, and British pound. He also touched on efforts to link cross-border fast payment systems and reduce the cost and time of remittances for emerging economies like India. Central bank digital currencies (CBDCs) were identified as a potential tool for enhancing cross-border payment efficiency.

The governor highlighted emerging risks to global financial stability, such as divergences in global monetary policies leading to capital flow volatility, higher interest rates affecting debt servicing, and the growth of private credit markets without adequate regulation. He also raised concerns about corrections in commercial real estate prices and their impact on small and medium-sized banks due to their exposure to the sector.