ContextSpecial address by Sanjay Malhotra, Governor of the Reserve Bank of India, at the Fifth Kautilya Economic Conclave, Mumbai, 3 October 2026.
Why it mattersDescribes India's financial stability toolkit and flags AI-related cyber risk and possible repricing of AI assets as emerging concerns.
- Geopolitical, trade, technology and climate risks interact in ways models struggle to capture.
- A sharp repricing of AI-related assets could unsettle financial markets.
- AI heightens cyber, model and third-party dependence risks.
- Use scenario analysis as a core part of risk management.
- Improve monitoring and assessment frameworks and map contagion channels.
- Make sure innovation reinforces rather than fragments the foundations of trust.
Read the speech summary
1. Why talk about stability now
Reserve Bank of India Governor Sanjay Malhotra defined financial stability as the system's ability to keep serving households and firms through stress, and explained why he raises it in calm times: long quiet periods encourage leverage and complacency, as Hyman Minsky warned, and India took about a decade to clean up the bad loans of the 2000s. He also sees the post-Washington Consensus order under strain from fragmentation, trade curbs, supply shocks, technology and climate, which makes risks harder to model.
2. India's framework and tools
Although the 1934 central bank law does not name financial stability explicitly, he says it follows from the RBI's mandates on monetary stability and system regulation, and price stability depends on it. Because it supervises banks, non-bank lenders and payments, provides emergency liquidity and runs deposit insurance, the RBI has the tools, while a council of regulators and government coordinates. Its approach is to make the system absorb shocks rather than try to prevent them: sound capital, liquidity and governance balanced against growth; data-driven supervision and stress tests published twice a year; countercyclical measures such as higher risk weights on commercial property in 2007 and on unsecured consumer credit and bank lending to non-banks in 2023; and temporary, targeted liquidity, as during COVID, for genuine liquidity rather than solvency problems. Monetary policy is kept for prices, with stability handled by specific tools.
3. Global risks
He lists five: higher global debt with shorter maturities and rising yields, which squeezes governments, firms and banks and can trigger outflows from emerging markets; stretched valuations tied to AI, where slower investment or earnings could cause a sharp repricing; growing leverage among hedge funds and other non-banks, increasingly intertwined with banks; private credit, where some large defaults suggest loose standards; and cyber threats amplified by AI. Any one may be manageable, but several at once could strain the system.
4. India's position and priorities
India faces the Middle East shock through commodity prices but from strength, and is diversifying imports, building oil reserves, speeding up the energy transition, signing trade deals and promoting local-currency settlement. Domestic bond yields rose only partly, thanks to fiscal consolidation and credible monetary policy; equities corrected in an orderly way. New rules tighten banks' cyber governance and model risk; private credit is small and non-bank lenders are well capitalised, at 24.6% against a 15% requirement, while June stress tests showed comfortable bank capital. He ends with five priorities: build resilience to shocks that will come; map new, cross-border risks that may start outside finance through scenario analysis; collect better data on non-banks and links between institutions; extend resilience beyond banks to markets, payments and technology providers; and make sure innovation such as AI and tokenisation preserves trust, settlement finality and the singleness of money.
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