While artificial intelligence and machine learning have opened new avenues of business and profit expansion, banks and financial institutions must not allow them to ride on, Reserve Bank of India’s Governor Shaktikanta Das said on Monday.
“Banks and other financial institutions must put in place adequate risk mitigation measures against all these risks. In the ultimate analysis, banks have to ride on the advantages of AI and Bigtech and not allow the latter to ride on them,” Das said at the RBI@90 high-level conference on ‘Central Banking at Crossroads’.
The latest technological advancements can pose financial stability risks; the growing use of AI introduces increased susceptibility to cyberattacks and data breaches.
AI’s opacity makes it difficult to audit or interpret the algorithms which drive decisions and can potentially lead to unpredictable consequences in the markets, Das said.
“The heavy reliance on AI can lead to concentration risks, especially when a small number of tech providers dominate the market. This could amplify systemic risks, as failures or disruptions in these systems may cascade across the entire financial sector,” he said.
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Speaking of financial stability risks, Das said that the correction in commercial real estate prices in some jurisdictions can put small and medium-sized banks under stress. This is because of their large exposures to this sector.
He also said that the interconnectedness between commercial real estate prices, non-bank financial institutions and the overall banking system amplifies these risks.
This has come as higher interest rates have led to increase in debt servicing costs, financial market volatility, and risks to asset quality.
Stretched asset valuations in some jurisdictions could trigger contagion across financial markets, creating further instability.
The rapid expansion of the private credit markets with limited regulation can also pose significant risks to financial stability, particularly since they have not been stress-tested in a downturn, he added.
Lower Rated Bond Yields Compress As HNIs Get Their Hands Dirty . Read more on Economy & Finance by NDTV Profit.AI’s opacity makes it difficult to audit or interpret the algorithms which drive decisions and can potentially lead to unpredictable consequences in the markets, Das said. Read MoreEconomy & Finance, Business, Notifications
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