Speaking at the Kautilya Economic Conclave, Reserve Bank of India (RBI) Governor Sanjay Malhotra urged greater vigilance across the Indian financial system, cautioning that prolonged periods of stability can inadvertently foster excessive risk-taking and leverage, meaning that today’s robust financial resilience does not guarantee immunity tomorrow. Stressing that financial and banking stresses can build rapidly while taking years to resolve, Malhotra warned that future crises might not originate within traditional banking channels, but could instead be triggered by geopolitical shocks, cyberattacks, or technological disruptions. To safeguard the economy, he advocated for enhanced scenario analysis, granular data utilization, and a broader scope of resilience encompassing non-bank financial institutions, payment systems, technology infrastructure providers, and cross-border networks. Addressing digital innovation, the governor noted that while artificial intelligence and tokenization can improve operational efficiency, they must preserve core trust foundations such as settlement finality, financial integrity, and the singleness of money. Reiterating the central bank’s stance on cryptocurrencies, Malhotra stated that while the RBI actively encourages underlying blockchain applications, it remains deeply cautious regarding the macroeconomic risks crypto assets pose to emerging markets like India. On the macroeconomic front, Malhotra highlighted that the Indian economy is navigating external risks—such as the West Asia conflict—from a position of strength, supported by strategic measures like import diversification, local-currency settlement, and strategic petroleum reserves. He pointed out that Indian equity markets have undergone an orderly correction from high valuations, and noted that adjustments in artificial intelligence-linked valuations globally could potentially benefit India through capital inflows. Furthermore, he reassured stakeholders that private credit remains small and unproblematic, with domestic banks maintaining comfortable Common Equity Tier 1 ratios and non-banking financial companies (NBFCs) operating with strong capital adequacy well above regulatory thresholds, collectively underscoring India’s ongoing structural stability even amidst global uncertainties.
Prolonged Stability Can Encourage Excess Risk-Taking, Cautions RBI Governor at Kautilya Conclave
