Governor of India’s central bank says AI poses risk to financial stability

The governor of the Reserve Bank of India (RBI) Shaktikanta Das has warned financial services providers that the growing use of AI in the sector could pose risks to financial stability.

Das told delegates at a conference hosted by the central bank on Friday that heavy reliance on AI can lead to concentration risks, especially when a small number of tech providers dominate the market.

He warned that this could amplify systemic risks, as failures or disruptions in these systems may cascade across the entire financial sector.

“Moreover, the growing use of AI introduces new vulnerabilities, such as increased susceptibility to cyberattacks and data breaches,” continued the RBI governor. “Additionally, AI’s opacity makes it difficult to audit or interpret the algorithms which drive decisions. This could potentially lead to unpredictable consequences in the markets.”

Das added that banks and financial institutions must put in place adequate risk mitigation measures against these risks because this will enable them to ride on the advantages of AI and BigTech and not allow these technologies to “ride on them”.

During the speech, the governor also highlighted key areas that are likely to redefine central banking include monetary policy, financial stability and new technologies.

In August, Das emphasised in a speech the critical need for data protection and ethical AI governance in financial institutions, stressing the importance of explainable AI to ensure fairness and warning how AI could disrupt digital systems and damage financial institutions’ reputations.

“AI technology can also be misused to spread misinformation and potentially causing severe damage and disruption as well as other digital systems that can also damage the reputation and operations of financial institutions,” he said at the time.



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