Malhotra warns of rising global debt, leverage and AI asset risks
Reserve Bank of India Governor Sanjay Malhotra warned of rising global debt, stretched AI valuations and non-bank leverage at the Kautilya Economic Conclave on October 3, 2026. He affirmed that Indian banks remain resilient against external shocks.
Five vulnerabilities testing systemic resilience
Malhotra highlighted five emerging global vulnerabilities: elevated sovereign debt, stretched valuations in the artificial intelligence sector, non-bank leverage, private credit defaults, and cyber risks.
Despite these pressures and the West Asia conflict, he noted that India’s domestic financial system maintains substantial buffers.
According to the June 2026 Financial Stability Report stress tests, banks retain comfortable Common Equity Tier 1 ratios under adverse scenarios.
In addition, non-banking financial companies posted an average capital-to-risk-weighted assets ratio of 24.6 percent as of March 31, 2026, exceeding the 15 percent regulatory floor.
Preemptive tools and regulatory separation
To preempt vulnerabilities, the central bank issued technology and cyber-risk governance directions for commercial banks in 2026 alongside draft Model Risk guidance for regulated entities.
Malhotra pointed to macroprudential precedents, including higher risk weights on commercial real estate in 2007 and on unsecured consumer credit in 2023.
The central bank adheres to the separation principle, using monetary policy for price stability while deploying macroprudential tools to safeguard financial stability.
Prudence before the next storm
Malhotra rightly targets non-bank linkages and AI risks before imbalances materialize.
Yet high capital buffers alone cannot insulate emerging markets if global asset repricings trigger sudden capital flight.
Proactive domestic oversight is sound, but cross-border contagion remains the ultimate challenge.