Aiming for a holistic approach, Reserve Bank of India Governor Shaktikanta Das said that banks in the country need to ramp up their liquidity buffers and be alert to the increasing threats from social media and artificial intelligence technologies while making presentations before the RBI@90 High-Level Conference. Challenges emerging from new technologies, financial stability concerns, and strong risk management were the themes in the rapidly changing financial scenario, according to Das.
RBI Governor Shaktikanta Das Asks Banks to Increase Liquidity Cushion
The Governor appealed to Indian banks to shore up their liquidity stashes to get ready for economic disturbances that may surface. “The banks must have strong liquidity buffers to meet any untoward situation,” Das said, echoing the central bank’s sustained efforts to ensure the financial system does not break down in response to potential shocks.
His comments come amidst heightened turmoil within the global financial system, led mainly by the great disparities in monetary policy among major economies. The shift is leaving deep imbalances of capital flows and exchange rates, which, Das said, have been an open threat to the stability of emerging markets such as India.
To emerging economies, Ghez says he welcomes their need to strengthen their policy frameworks to accumulate buffers that can cushion the shock of this external volatility.” This was said while reflecting on ongoing global challenges to financial markets.
Social Media and AI: New Frontiers of Risk
Aside from this liquidity issue, another problem bothering Governor Das was the rising social media and AI technology concerning financial stability. He said that banks should be more watchful of their interactions with social media since, he believes, misinformation or the general trend online can be a sufficient confluence of action that will form market decisions.
“Banks should be watchful in the social media space,” said Das. He laid emphasis on being vigilant in the face of risks emerging from a negative campaign at the social media corner, misinformation, and digital manipulation by hackers, which may further dent public confidence in the banking system.
Thus, Das expressed concern over the spread of AI and Bigtech within the banking world. He therefore warned that although AI has brought enormous benefits; these include efficiency and decision-making, new risks must also be addressed cautiously.
“The high dependence on AI can create **concentration risks, more so when there is oligopolistic behavior from a few technology providers dominating the market, as the governor pointed out in his address, warning against over-reliance on any relatively limited number of technology providers. That concentration, according to him, would heighten the *systemic vulnerabilities* within the banking sector, especially if those tech providers happen to suffer some technical or operational failures.
AI’s ‘Opacity’ and Financial Stability Concerns
The RBI governor further elaborated on the dangers of AI’s opacity. Such algorithms are becoming increasingly opaque; as a consequence, banks and regulators are unable to audit and interpret them in order to make lending decisions. Opaqueness could precipitate unintended consequences in financial markets that will be disastrous, because spurious decisions by AI systems spuriously precipitate volatility and instability.
This is increasing new threats such as greater vulnerability to cyberattacks and **breaches\”, according to Das, who challenged the banks to implement adequate risk mitigation strategies. He indicated some risks associated with AI systems which were not transparent or easy to audit, which may lead to unintended financial operation outcomes.
“Ultimately, the script must flip in favor of banks riding on the advantages of AI and Bigtech instead of allowing these technologies to ride on them,” Das declared, underlining the importance of balancing banks’ use of advanced technologies with sound risk management practices.
Expanding Private Credit Markets: A Global Issue
Beyond AI risks, the Governor sounded a warning on the rapid growth of private credit markets around the world, which, having grown so rapidly over recent decades, have been largely unregulated to date. Das felt that such markets had not had enough stress-testing during these times when the economy plunged downward, with this implying potential financial instability were these markets to come under adverse conditions.
Private credit markets have grown rapidly around the world with relatively little regulation, and this poses big risks to the financial system,” Das said. He pointed out that the lack of regulatory oversight in these markets may exacerbate vulnerabilities-also in the event of an economic stress.
Guidance on Money Laundering and Terrorist Financing
Das repeated the RBI’s commitment to fighting the risks of money laundering and terrorism financing and presented recently released guidelines by the central bank for regulated entities such as banks and Non-Banking Financial Companies (NBFCs) in ensuring strict compliance by the latter with AML/CFT norms.
The RBI requires its regulated entities to use information from all relevant internal and external sources in conducting a wide-ranging risk assessment of the bank. These assessments have to be of risks concerning clients, geographic locations, products, services, and delivery channels.
As a part of its overall effort to combat money laundering and terrorist financing, RBI issued the Internal Risk Assessment Guideline on Money Laundering /Terrorist Financing to guide bank-based and other financial institutions with structured guidelines for the same. This particular guideline specifically targets the employees entrusted with AML/CFT and Counter Proliferation Financing (CPF).
Mitigating Global and Domestic Risks
Governor Das concluded by emphasizing the need to have a strong risk management structure in place with the financial landscape in constant flux. He asked Indian banks and financial institutions not to merely keep an eye on the global risks but also become proactive to confront risks emanating from vulnerabilities of AI, private credit market expansion, and external volatility sensitivity, which is monetary policy dependent.
In fact, this call for vigilance by the RBI comes at a suitable time when emerging economies, such as India, face the complex developments of the global environment marked by technological changes, geopolitical tensions, and an economy marred by uncertainty. The impact these measures will have in the policy plan of the central bank is in promoting liquidity buffers, regulating adoption, and augmenting anti-money laundering frameworks-all part of its broader strategy in safeguarding the financial system from a variety of shocks.
As Das eloquently puts it, “Banks must ride on the advantages of new technologies while staying firmly grounded in sound risk management principles.”
ALSO READ: Uttarakhand to Host 38th National Games in 2025: A Grand Celebration of Sports and Culture