Malhotra flags global debt, AI valuations and cyber risks
Reserve Bank of India Governor Sanjay Malhotra warned of rising global vulnerabilities from elevated debt, stretched AI valuations and cyber risks at the Kautilya Economic Conclave. He noted that domestic banks and shadow lenders maintain capital buffers well above regulatory minimums.
Buffers withstand external headwinds
Governor Sanjay Malhotra affirmed that the domestic financial system remains resilient against external shocks, supported by strong institutional balance sheets.
Stress tests from the June 2026 Financial Stability Report confirmed that aggregate Common Equity Tier 1 ratios for banks remain comfortable across adverse scenarios.
Non-banking financial companies recorded an average capital to risk-weighted assets ratio of 24.6 percent as of March 31, 2026, compared with the 15 percent regulatory requirement.
To curb technological vulnerabilities, the central bank implemented the 2026 Directions on cyber-risk governance for commercial banks and drafted Model Risk guidance.
Five fault lines across global markets
Malhotra highlighted five emerging threats to global financial stability: rising debt-to-GDP levels with hardened sovereign yields, stretched valuations in the AI value chain, elevated leverage among non-bank financial intermediaries, private credit defaults, and AI-driven cyber threats.
He cautioned that a shift in AI earnings or investment could trigger broad repricing across asset classes.
“The next financial crisis may not originate in a bank,” Malhotra warned, urging regulators to map contagion channels.
Complacency remains the true threat
Malhotra rightly emphasizes that strong balance sheets do not guarantee immunity against global shocks.
Deepening ties between banks and shadow lenders still pose underappreciated contagion risks.
Supervisors must enforce stringent model risk controls before complex tech dependencies backfire.