RBI highlights risks of AI in banking and private credit markets
The RBI Governor has raised concerns over AI’s growing role in financial services, warning of potential stability risks.
The increasing use of AI and machine learning in financial services globally could lead to financial stability risks, according to the Governor of the Reserve Bank of India (RBI), Shaktikanta Das. Speaking at an event in New Delhi, Das cautioned that the reliance on a small number of technology providers could lead to concentration risks in the sector.
Disruptions or failures in these AI-driven systems could trigger cascading effects throughout the financial industry, amplifying systemic risks, Das warned. In India, financial institutions are already employing AI to improve customer experience, reduce operational costs, and enhance risk management through services like chatbots and personalised banking.
However, AI adoption comes with vulnerabilities, including increased exposure to cyber attacks and data breaches. Das also raised concerns about the ‘opacity’ of AI algorithms, which makes them difficult to audit and could lead to unpredictable market consequences.
Das further emphasised the risks posed by the rapid growth of private credit markets, which operate with limited regulation. He warned that these markets have not been tested under economic downturns, presenting potential challenges to financial stability.
