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Informist, Saturday, Oct. 3, 2026

 

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--RBI Malhotra: India has had long period of financial stability
--CONTEXT: RBI Governor Sanjay Malhotra speaks at Kautilya Economic Conclave
--RBI Malhotra: Don't see imminent signs of fincl sector risks
--RBI Malhotra: Econ cost of complacency is very high
--RBI Malhotra: Cannot look at price and stability in isolation
--RBI Malhotra: Banking, fincl sector risks can build overnight
--RBI Malhotra: Can't afford to become complacent
--RBI Malhotra: Can ensure fincl system acts as shock absorber
--RBI Malhotra: Can't prevent every shock
--RBI Malhotra: Focusing on enhancing resilience of fincl system
--RBI Malhotra: Have well offsite, on-site supervision
--RBI Malhotra: Global econ situation remains challenging
--RBI Malhotra: Fincl system absorbed West Asia war-led shock well
--RBI Malhotra: Global econ facing risks to inflation, fincl system
--RBI Malhotra: Any slowdown in AI invest can trigger risk in AI value chain
--RBI Malhotra: India has strongest GDP growth amid West Asia war
--RBI Malhotra: India has low inflation with strongest growth
--RBI Malhotra: India remains exposed to West Asia conflict impact
--RBI Malhotra: Indian yields have risen only partially
--RBI Malhotra: Fiscl consolidation helped with containing yields
--RBI Malhotra: Pvt credit insulated from global risks
--RBI Malhotra: Cognisant of risks posed by AI, cybersecurity
--RBI Malhotra: Committed to remain vigilant to emerging vulnerabilities
--RBI Malhotra: Today's resilience doesn't mean tomorrow's immunity
--RBI Malhotra: Must acknowledge many shocks will be inevitable
--RBI Malhotra: New generation of systemic risk taking shape
--RBI Malhotra: Risks are increasingly exogenous, cross border
--RBI Malhotra: Next fincl shock can be from geopolitics, cyber attack
--RBI Malhotra: Must make scenario analysis cornerstone of cyber risk mgmt
--RBI Malhotra: Must improve monitoring, assessment framework
--RBI Malhotra: Innovation must strengthen, not fragment foundation of trust
--RBI Malhotra: Need resilience across financial systems
--RBI: Prolonged period of fincl stability can weaken appetite for prudence 
--RBI: Full potential of econ growth can't be achieved sans fincl stability 
--RBI: Recognise that attempting to remove all risks can curtail innovation 
--RBI: Important to differentiate between liquidity, solvency issues 
--RBI: AI heightened risks of human oversight, cyber risks, model risks 
--RBI: Taking further steps to maintain resilience amid war risks 
--RBI: Indian fincl system resilient, supported by bks' balance sheet
--RBI: Aim must be to foster fincl system that can provide svcs amid shocks
--RBI Malhotra: Global interest rates can have implications on India real

 

NEW DELHI – India has experienced a very prolonged period of financial stability, supported by strong balance sheets of banks, financial institutions, governments, and households, which has helped the economy in tackling repeated shocks, the Reserve Bank of India Governor Sanjay Malhotra said Saturday. He, however, warned that "we cannot afford to become complacent". "The economic and financial costs of allowing vulnerabilities to build are simply too high", he said in his address at Kautilya Economic Conclave 2026 in Delhi.

 

"Geopolitical and geo-economic fragmentation, strategic realignment, trade restrictions, repeated supply shocks, technological disruption, climate change are interacting in ways that are difficult to predict, and it's even more difficult to model using historical relationships and how we need to improve them. For central banks, this, therefore, has important implications," he said. "We cannot look at price and financial stability in isolation from these developments," he added.

 

Malhotra said India remains exposed to the effects of the West Asia war, which leads to higher commodity prices and external sector pressures. "Nevertheless, our economy is navigating this phase from a position of strength," he added. While stressing that there are no imminent signs of stress, he said, "We need to remain alert to these risks". "Our experiences of the past two decades have offered us important lessons that banking and financial stresses can build overnight, but they will take years to resolve, and they can be very painful," he said. 

 

Highlighting that the global economic environment continues to remain challenging, Malhotra said the conflict has exacerbated not only inflationary pressures, but it has also elevated financial system vulnerabilities. He said that India had very low inflation, 2% on average last year, while having the strongest growth amongst the other economies, Malhotra said, "Strong macroeconomic fundamentals and a resilient global financial system provide confidence in our ability to withstand this lingering shock." He also said India is taking further measures to enhance its resilience to such shocks.

 

While ensuring financial stability, it is important for policymakers to acknowledge and realise that it is not possible to prevent every shock, whether they are originating in the real economy or through a geopolitical event or a commodity price shock or technological disruption. "What we can ensure, however, is that the financial system acts as a shock absorber. Our focus, therefore, has been over the years to enhance the resilience of the financial system. We achieve this through a combination of tools, prudent regulation, risk-based supervision, macro-prudential measures, liquidity support, including emergency liquidity assistance and, finally, resolution," Malhotra said.  

 

Malhotra warned that "today's resilience may not necessarily imply tomorrow's immunity." He said RBI is committed to remain vigilant of emerging vulnerabilities and continue to keep financial system strong and resilient. 

 

He said one "must acknowledge many shocks will be inevitable" and financial stability is not about preventing them. "It is about strengthening systemic resilience to face these shocks and contain their amplification," the governor said. The shocks may be endogenous or exogenous, he said, adding that the aim must be to foster a financial system that can provide financial services in all parts of the world, even under severe shocks.

 

Elaborating on the risks, he said a new generation of systemic risks is taking shape. Assessing them and their complex interactions is vital, he said, adding that risks are increasingly exogenous, cross-border, and interconnected. According to Malhotra, the next financial crisis may not originate in a bank, or even in the world of finance. It may begin with a geopolitical event, a cyber attack, or a technological failure that affects the financial system through multiple channels, he said.

 

"To strengthen systemic resilience, we must aim to better understand this interconnectedness, this network of dependencies and contagion channels, and make scenario analyses a cornerstone of our risk management," the RBI chief said. 

 

India must also improve monitoring and assessment frameworks and for that, there is a need for measured and more granular data. The financial system is becoming increasingly complex, but data on interconnected exposures, technological development, and cross-border positions sometimes remain fragmented, he said. "In an increasingly interconnected financial system, the quality of our data will increasingly decimate the quality of our risk assessment."

 

Malhotra also said resilience must be system-wide. Strong banking system is necessary, but it is not sufficient, he added. "We need resilience across sectors and institutions - financial markets, payment systems, technology infrastructure providers, critical third parties, and cross-border financial networks," he said. 

 

The RBI Governor also said innovation must strengthen and not fragment the foundations of trust. "Artificial intelligence, tokenisation, and new forms of financial intermediation can dramatically improve efficiency," he said. "But innovation will be sustainable only if the financial system preserves the fundamental properties on which trust rests."

 

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, Malhotra said. This requires resilient institutions, better data, deeper markets, critical safety nets, effective resolution mechanisms, and regulation and supervision that is proactive and forward-looking, while at the same time being proportionate, he said.

 

According to the central banker, artificial intelligence can impact more than just cyber security. The AI investment cycle has been a major support for global financial markets as well as business across the world, especially in advanced markets. "However, as the investment cycle matures, any slowdown in AI investment or earnings could trigger a sharp repricing of financial assets, especially in the AI value chain," he said. "High risk appetite has spurred an increase in leverage, which along with declining cash flow among major AI firms could further amplify market corrections and financial market volatility."

 

"Large differences in cyber capabilities and resilience and resolution capabilities across countries have implications for jurisdictions far beyond the source of the vulnerability," he also said. Development of sophisticated AI tools can also lead to heightened cyber risks, model risks, third-party dependence and erosion of human oversight and accountability. "The most immediate concern is regarding cyber risks. This is especially so for the highly interconnected financial systems which do not have national borders."

 

He said that the central bank does recognise that removal of all risks can curtail innovation. In all, Malhotra said economic growth cannot be achieved without financial stability. 

 

Speaking about bond yields, Malhotra said Indian yields have risen only partially, thanks to the government's continued fiscal consolidation. With rise in bond yields globally, he said that global interest rates can have implications on India's real interest rates.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Deepshikha Bhardwaj

 

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