India’s Malhotra warns calm can build risk and sets resilience priorities
India’s central-bank governor Sanjay Malhotra saw no imminent financial stress but warned that prolonged stability can encourage borrowing and risk-taking. His Kautilya speech set five priorities, including better data and resilience across payments and technology providers. He also described possible channels through which supply shocks and AI-related market corrections could affect finance.
Economics & Markets··Morning
Malhotra cautions against borrowing through prolonged calm
Sanjay Malhotra, governor of the Reserve Bank of India, warned at the Kautilya Economic Conclave on 3 October that prolonged financial stability can encourage risk-taking and leverage, meaning greater use of borrowed money. As memories of earlier crises fade, vulnerabilities can accumulate. His speech placed continued vigilance and financial resilience at the centre of the central bank’s response to increasingly interconnected risks.[1], [2]
Malhotra said he saw no imminent signs of stress in India’s financial system. He recalled that cleaning up excessive lending and non-performing assets inherited from the early 2000s had taken more than a decade. India’s Ministry of Finance and the Institute of Economic Growth organised the conclave. The governor said current resilience offered no guarantee against future difficulties and warned of the economic and financial costs of allowing vulnerabilities to build.[1]
Five priorities reach payments and technology providers
The first two priorities were strengthening systemic resilience and understanding new risks and their interactions. Malhotra said financial institutions should keep providing services under severe stress while the system absorbs shocks and contains their amplification. A geopolitical event, cyberattack or technology failure outside banking could reach finance through several channels. His third priority was more detailed data: information on non-bank intermediaries, interconnected exposures, technology dependencies and cross-border positions remained fragmented.[2]
The fourth priority extended resilience to non-bank finance companies, markets, payment systems, technology infrastructure and critical outside providers. The fifth concerned trust during financial innovation. Artificial intelligence, tokenisation and new intermediaries could improve efficiency, he said, but adoption needed to preserve sound institutions, settlement finality, the singleness of money and financial integrity. He called for deeper markets, credible safety nets and proportionate regulation and supervision.[2]
Supply shocks and AI valuations feature in the warning
Malhotra said India had absorbed the West Asia conflict’s supply shock relatively well, while inflation pressure and financial vulnerabilities had increased. He identified the possible maturing of AI investment and slower corporate earnings as risks for asset prices. Greater leverage and declining cash flow at major AI companies could amplify corrections and volatility, he said; a correction in advanced-economy AI valuations could also support capital inflows into India.[1]
