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Informist, Wednesday, Dec. 31, 2025

 

--RBI report:Recommend forming board-approved AI policy by regulated entities 

--RBI report: Recommend forming an AI policy to provide regulatory guidance 

--RBI report: Adoption of AI by central banks has been challenging 
--RBI report: Stablecoin issuers becoming important in traditional fincl mkts 
--RBI report: Financial stability risks from crypto-asset activities remain 

 

NEW DELHI – The Reserve Bank of India's Framework for Responsible and Ethical Enablement of Artificial Intelligence Committee has recommended formulating an AI policy to provide necessary regulatory guidance, as central banks worldwide have found it challenging to adopt the rapidly evolving technology. These recommendations were outlined in the December edition of the Reserve Bank of India's Financial Stability Report, released on Wednesday.

 

The panel has also suggested establishing shared infrastructure to democratise access to data, creating an AI Innovation Sandbox, and developing indigenous financial sector-specific AI models. Further, the panel also recommended adopting a more 'tolerant' approach to compliance for low-risk AI solutions. 

 

"To mitigate AI risks, it recommends the formulation of a board-approved AI policy by REs (regulated entities), the expansion of product approval processes, consumer protection frameworks and audits to include AI related aspects, the augmentation of cybersecurity practices and incident reporting frameworks, the establishment of robust governance frameworks across the AI lifecycle and making consumers aware when they are dealing with AI," the report said.

 

Elaborating on the challenges central banks face in adopting AI, the report said these institutions should manage the trade-off between using external and internal models while rethinking their traditional roles as compilers, users, and providers of financial system data. 

 

STABLECOIN

RBI Governor Sanjay Malhotra, in his foreword to the report, said that while technological advances and the rise of non-bank financial intermediation bring immense opportunities, the rise of stablecoins and private credit adds new layers of risk. Stablecoins are marketed as reliable payment instruments and safe stores of value, unlike their unbacked counterparts, such as Bitcoin, and as offering faster, cheaper payments, the report said in the segment on "Financial Stability Implications of Stablecoins."

 

The RBI sees stablecoins posing risks to monetary sovereignty, liquidity vulnerabilities, and potential credit disintermediation. Active stablecoins have increased to over 170 by mid-2025 from around 60 in mid-2024. Further, their market capitalisation has risen to $300 billion from $120 billion over two years. Yet, almost 99% of market currency in this segment is dollar-denominated.

 

"Currently, risks from stablecoins to macrofinancial stability outweigh their purported benefits. In their short history, stablecoins have proven to be volatile and vulnerable to confidence shocks and structural fragilities," the report said. Wider adoption of stablecoins can introduce new channels of financial stability risks, especially during periods of market stress, the report said.

 

The central bank has adopted a "cautious" stance on crypto assets, including stablecoins, to safeguard monetary sovereignty amid global shifts and preserve financial stability. The report argued that central bank digital currencies can deliver the benefits stablecoins claim to offer, while maintaining the credibility and safety of central bank money. 

 

"The RBI, therefore, strongly advocates that countries should prioritise central bank digital currencies (CBDCs) over privately issued stablecoins to maintain trust in money, preserve financial stability and design next generation payments infrastructure that is faster, cheaper and secure," it said.  End

 

Reported by Anand JC

Edited by Saji George Titus

 

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