India Reserve Bank Governor Warns of AI Risks

The global rise in the use of artificial intelligence (AI) and machine learning in financial services could pose risks to financial stability and necessitates robust risk management practices from banks, the Governor of the Reserve Bank of India, Shaktikanta Das, said on Monday.

“Heavy reliance on AI could lead to concentration risks, particularly when a small number of technology providers dominate the market,”

Das stated during an event in New Delhi. He warned that such dependence might heighten systemic risks, as failures or disruptions in these technologies could ripple across the financial sector.

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In India, financial service providers are using AI to enhance customer experiences, reduce costs, manage risks, and foster growth through chatbots and personalized banking solutions.

However, Das noted that the increasing use of AI brings new vulnerabilities, such as a greater risk of cyberattacks and data breaches.

He also emphasized AI’s “opacity,” which makes it difficult to audit and interpret the algorithms that drive lending decisions, potentially leading to “unpredictable market consequences.”

Das further cautioned that private credit markets have grown rapidly worldwide with limited regulation, posing significant risks to financial stability, particularly since these markets have not yet been stress-tested during an economic downturn.