03 October,2026 03:06 PM IST | New Delhi | mid-day online correspondent
RBI Governor Sanjay Malhotra. File picture
Reserve Bank of India (RBI) Governor Sanjay Malhotra on Saturday, while noting the resilience in the domestic financial system warned that it cannot be taken as guarantee against future vulnerabilities and called for continued vigilance to safeguard financial stability, reported news agency PTI.
He identified five priorities for policymakers and stressed that financial stability should focus not on preventing shocks but on strengthening the financial system's resilience to withstand and contain their impact.
"Today's resilience may not necessarily imply tomorrow's immunity, and we are committed to remain vigilant of emerging vulnerabilities and continue to keep our financial system strong and resilient," he said, at the Kautilya Economic Conclave.
He pointed out that India was navigating a challenging global environment from a position of strength, supported by sound macroeconomic fundamentals and resilient balance sheets across banks and non-bank financial companies (NBFC).
"Strong macroeconomic fundamentals and the resilience of the financial system provide confidence in our ability to withstand these lingering shocks," he said.
He noted that India remains vulnerable to external shocks through commodity prices, global financial conditions and capital flows.
The RBI Governor identified AI-related valuation excesses, elevated global debt levels, leverage in the non-bank financial sector, growing private credit exposures and cybersecurity threats as the five key concerns facing the international financial system.
Emphasising that these vulnerabilities do not indicate immediate financial stress, he said, "It is not that I see any imminent signs of stress, but we need to remain alert to these risks."
He said the next financial crisis may not necessarily originate in a bank or even within the financial sector, but could begin with a geopolitical event, cyber attack or technological failure and affect the financial system through multiple channels.
Malhotra also sought improvements in monitoring and assessment frameworks through better and more granular data.
He noted that the data quality would increasingly determine the quality of risk assessment in an interconnected financial system, while pointing out that data on non-banking financial institutions (NBFIs), interconnected exposures, technological developments and cross-border positions can remain fragmented.
He further said a strong banking system while necessary is not sufficient and resilience needs to be "system-wide". He said resilience is required across NBFIs, financial markets, payment systems, technology infrastructure providers, critical third parties and cross-border financial networks.
The RBI governor said technologies such as AI and tokenisation, as well as new forms of financial intermediation, could significantly improve efficiency, but innovation must not weaken the foundations of trust in the financial system.
He stressed that sound institutions, settlement finality, singleness of money and financial integrity as fundamental properties need to be preserved.
"The challenge before us is to build a financial system that can withstand shocks that we can anticipate, and even those we cannot yet foresee," he said.
This would require resilient institutions, better data, deeper markets, credible safety nets, effective resolution mechanisms and regulation and supervision that are proactive and forward-looking while remaining proportionate, he added.
"If we succeed, financial stability will remain largely invisible, and in central banking, invisibility is perhaps the most invaluable and meaningful measure of success," he stated.
While noting that AI investment boom has been a major driver of global financial markets in recent year, he said any moderation in AI-related investment or earnings could lead to a significant repricing of financial assets linked to the sector, which could have a favourable impact on India.
"If corrections in AI-related valuations were to happen in advanced countries, it may have a positive impact in terms of capital inflows," he said.
The Finance Ministry's latest Monthly Economic Review report had said (AI) continues to drive capital investment and capital flows across borders and developed countries are also racing to secure investments to finance their renewed manufacturing aspirations amidst increasing weaponisation of global supply chains. Thus, developing nations such as India are facing stiff challenges to attract capital flows.
(With inputs from PTI and IANS)
