RBI Governor Urges Banks to Strengthen their Liquidity Buffers

During the RBI@90 High-Level Conference, Reserve Bank of India (RBI) Governor Shaktikanta Das stressed the importance of banks enhancing their liquidity buffers to prepare for unexpected situations. He also urged caution regarding the growing influence of social media and artificial intelligence (AI) within the financial sector. As banks increasingly rely on technology, Das emphasized that they must remain vigilant in the social media space while strengthening their financial safeguards to handle unforeseen challenges.

Addressing the broader technological challenges, Das pointed out that AI and other technologies introduce potential risks to financial stability. One concern is the heavy reliance on a small group of dominant tech providers, which could lead to concentration risks. To mitigate these threats, Das advised banks and financial institutions to implement strong risk management strategies. He emphasized that banks should harness the benefits of AI and Big Tech while maintaining control rather than allowing tech companies to dominate the financial landscape.

The increasing use of AI also introduces cybersecurity risks, with Das highlighting that AI’s complexity and opacity make it harder to audit algorithms that drive key financial decisions. This could lead to unpredictable market consequences as AI systems become harder to interpret and regulate. Furthermore, he warned that these new vulnerabilities, such as cyber-attacks and data breaches, must be carefully managed to protect financial stability.

Das also touched on the global growth of private credit markets, which have expanded rapidly but remain largely unregulated. He expressed concerns that these markets pose significant risks to financial stability, especially since they have not yet been tested during economic downturns. As these markets grow, there is a pressing need for stronger regulatory frameworks to ensure their stability.