Reserve Bank of India governor Sanjay Malhotra on Saturday described India’s financial system as "very resilient" but cautioned against complacency amid external headwinds such as high global debt, stretched AI valuations, and cyber threats. Speaking at the 5th Kautilya Economic Conclave in New Delhi, Malhotra emphasized the need for vigilance despite the current stability, warning that prolonged calm can encourage risk-taking and increase vulnerability to shocks, according to livemint.com.
Malhotra highlighted that while there are no immediate signs of stress, the financial system must remain alert to risks from real economy shocks, geopolitics, commodity prices, and technological disruptions. He noted that banking and financial stresses can emerge quickly but take years to resolve, citing India’s decade-long cleanup following excessive lending in the early 2000s. The RBI aims to ensure the financial system acts as a shock absorber through prudent regulation and risk-based supervision, livemint.com reported.
The governor’s remarks come amid a backdrop of global economic uncertainties, including elevated crude oil prices and tightening financial conditions. The RBI is expected to raise the policy repo rate by 25 basis points to 5.50% on October 7 to address inflation risks, with a further hike anticipated in December, according to bfsi.economictimes. Malhotra’s warning underscores the challenges posed by stretched valuations in AI and leverage outside banks, which add complexity to the RBI’s monetary policy decisions.
The RBI’s next monetary policy meeting is scheduled for October 7, where the central bank is widely expected to announce a 25 basis point repo rate increase to 5.50%, maintaining a neutral stance. This decision will reflect the RBI’s balancing act between supporting growth and containing inflation amid persistent external risks, bfsi.economictimes reported.