RBI Governor warns of debt, leverage and AI-driven cyber threats to financial stability

At the Kautilya Economic Conclave in New Delhi, Reserve Bank of India Governor Sanjay Malhotra outlined five major vulnerabilities threatening global financial stability. He pointed to elevated global debt levels, with shorter maturities and higher bond yields tightening borrowing conditions for sovereigns and corporations. Malhotra warned that the AI investment boom has lifted equity valuations, but a slowdown could cause a rapid repricing of assets across the AI value chain.

He cited growing leverage among hedge funds, option sellers, ETFs and other non-bank financial intermediaries, especially in advanced economies, as a source of systemic risk. Private-credit markets, he said, show weak lending standards, as evidenced by recent high-profile defaults. Lastly, he emphasized that sophisticated AI tools heighten cyber, model and third-party risks for a borderless financial system. Despite these global challenges, Malhotra noted India’s strong macro fundamentals and ongoing measures to bolster resilience, such as diversifying imports and expanding strategic petroleum reserves.