Sanjay Malhotra: speeches

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.

1. AI as a new way of banking

Speaking at the FIBAC conference, Reserve Bank of India Governor Sanjay Malhotra said AI will mark the 2020s for Indian banks, much as liberalisation marked the 1990s and digitalisation the 2010s. It is not a product to buy but a shift in how banks assess danger, look after clients, set the price of capital and structure their organisations; the choice is whether to steer it deliberately or be shaped by it. He first recapped last year's three regulatory priorities: Basel III is on track for April 2027, regulatory burden on boards and forms has been cut, and public digital rails such as Account Aggregator and the Unified Lending Interface are lowering the cost of credit, especially for small firms.

2. Five reasons to engage

The RBI sees AI as a capability to harness, not merely a risk. He gave five arguments. Credit: models using cash flows, tax filings and utility payments can reach borrowers with no credit history at far lower cost, and spot stress earlier. Service: tools that assist, not replace, relationship managers and complaint handling. Inclusion: voice interfaces in Indian languages and early-warning models that allow counselling before default. Efficiency: automating document processing, reconciliation, audit sampling and regulatory reporting to cut costs. Fraud: machine-learning systems that learn from transaction patterns can catch anomalies in real time, where fixed rules always lag. Each bank should write its own playbook, backed by board-driven strategy and sustained investment in infrastructure, skills, partnerships and governance.

3. Seven risks

He then listed seven risks. Opaque black-box models undermine accountability when a loan is refused. Bias can reproduce historic discrimination by region, occupation or community, so fairness must be designed in from day one. Concentration and herding arise if a few foundation models or vendors underpin decisions, turning one flaw into a systemic one and synchronising trading in stress. Vendor dependence requires contracts with audit, explanation and exit rights. On data privacy, the data-protection law is the minimum, not the maximum. Cyber and adversarial attacks, such as data poisoning, can target AI defences. Finally, human judgment must not erode: blaming the model is never acceptable, so oversight and the ability to intervene and override must remain.

4. What the RBI expects and offers

Following its FREE-AI committee and draft model-risk guidelines, the RBI takes a principles-based, proportionate approach, treating innovation and safety as complementary. Banks should keep a full inventory of AI systems including vendor-embedded ones, adopt board-approved governance with clear accountability, be able to explain decisions affecting customers, stress-test and red-team models before and after launch, and keep human oversight wherever harm could result. The RBI promises consultative, evidence-based supervision, its regulatory sandbox, and shared tools such as MuleHunter and a planned Digital Payments Intelligence Platform. The winners, he concludes, will adopt AI with understanding, accountability and customer trust.

1. Potential turned into impact

At the Global Fintech Fest, RBI Governor Sanjay Malhotra said that what was once aspiration is now daily reality: roughly 570 million basic bank accounts under the government scheme, hundreds of millions of micro-insurance policies, and about 24 billion UPI payments a month. The real achievement, he said, is that digital finance became ordinary, so even a street flower seller shows a QR code. He credits public-private partnership rather than technology or officials alone. The hardest task remains the last mile: informal-sector savings, micro-insurance, small pensions and small loans for women, farmers and smaller towns, where firms too often chase customers who are already banked. Newer tools, whether AI, quantum computing or tokenisation, are only means to that end.

2. Four ingredients of trust

Trust, he said, is a daily working practice, earned one payment at a time. Recalling hundis, the handwritten merchant notes honoured across great distances on reputation alone, he argued that trust once rested on merchants, now rests on institutions and must extend to intelligent systems. His four ingredients: mitigate AI risks such as opacity and bias; treat customer data as a fiduciary duty, following the consent-based design of the Account Aggregator; accept that responsibility grows with size, so firms become too significant to be careless and must invest in resilience and cyber security; and avoid structuring a business around regulatory gaps or scaling first and seeking forgiveness later, since the sandbox exists for early engagement and rules eventually catch up.

3. A global vision

India's fintech sector ranks third worldwide by funding, with 2.4 billion dollars raised in 2025 and 30 unicorns. After a decade of building for India, he wants the next to build for the world, exporting solutions for inclusion, affordable payments, digital identity and interoperable public infrastructure, and earning leadership by having others adopt its standards.

4. What the RBI is doing

The central bank calls fintech a strategic partner. It runs an on-tap regulatory sandbox, an annual hackathon and a self-regulatory-organisation scheme, recognising United FinTech Forum as the second such body. It is building public infrastructure: the Unified Lending Interface, Account Aggregator, the MuleHunter.ai fraud detector and a proposed Digital Payments Intelligence Platform, plus pilots of programmable CBDC and tokenised certificates of deposit, and it announced tokenised corporate bonds settled in CBDC together with SEBI. Regulation stays activity-based, with the same treatment for the same risk, and light where innovation is young. New AI, model-risk and quantum-resilience work aims to anticipate change.

1. Why small firms matter

Opening an MSME Day event in Kochi, Reserve Bank of India Governor Sanjay Malhotra said micro, small and medium enterprises are about 90% of businesses worldwide and half of jobs; in India they produce 31% of GDP, about 35% of manufacturing output and close to half of merchandise exports, supporting over 320 million livelihoods. A financial system that serves its smallest and most numerous participants poorly, he said, is not serving the economy.

2. What the RBI has done

He listed measures: priority-sector classification with a sub-target for micro firms; collateral-free loans, with the limit doubled from 1 million to 2 million rupees; wider credit-guarantee cover with zero risk weight on the guaranteed portion; the receivables discounting platform TReDS; simpler working-capital norms; priority-sector recognition for co-lending; the Account Aggregator, which supported about 3.5 trillion rupees of lending in 2025-26; and a ban on prepayment charges on floating-rate loans to individuals and small firms. Town halls, banker training and empowered committees keep the dialogue going. Bank credit to the sector reached 36.79 trillion rupees, growing about 15% a year over five years against 13.7% for all credit, though he admitted the gap is not closed.

3. Unified Lending Interface and expectations

The Unified Lending Interface should do for credit what UPI did for payments, letting lenders assess a borrower with consent-based digital data such as tax filings, bank statements and utility or land records instead of weeks of paperwork, which helps firms with thin credit histories. He asked financial institutions to invest in the public digital stack, accelerate scheme delivery and treat small firms as long-term partners, not regulatory obligations. He asked entrepreneurs to invest in technology and innovation, use the available platforms, register on the free online Udyam portal to access government schemes, and build trust through formalisation, digital adoption and financial discipline. The RBI promises to keep building the rails and reducing friction.