Geopolitical, Trade Uncertainties, Cyber Risks Major Risks To Financial System Over Medium Term Says RBI Governor

Mumbai: The Reserve Bank of India (RBI) governor Sanjay Malhotra on Tuesday highlighted geopolitical uncertainties arising from the West Asia crisis, trade related uncertainties and cyber risks as the major risks facing the Indian economy and the banking sector over the medium term but added that the country is well positioned to meet these challenges.

In a question and answer sessions with industry and banking stalwarts here at FIBAC 2026, the annual banking conference organised by FICCI and the Indian Banks’ Association, Malhotra was asked a question by Vijay Sankar, senior vice-president FICCI who is also the chairman of Chennai based Sanmar Group on the biggest risks facing India’s financial system over the medium term?

Malhotra said, “I think there are quite a few challenges. Public debt levels in advanced economies are high. There is growing interconnectedness of NBFCs and unregulated space outside, not so much in India. Equity valuations are elevated and if there are corrections, all of these could have spill-over effects.”

He said that the country is facing uncertainties, not only geopolitical arising from the West Asia crisis, but also those related to global trade policy and tariffs. He also highlighted cyber risks.

“But I must mention that the Indian economy and the Indian banking sector are very well positioned to meet these risks. The banking sector is very robust, with CRAR (capital to risk-weighted assets ratio) of 17-18 per cent, GNPAs (gross non-performing assets) is less than 2 per cent and Net NPA is less than 0.5 per cent, banks have healthy liquidity coverage ratio, are reporting good profit numbers and their price to book is also increasing,” Malhotra said.

He added that inflation is under check while growth has remained resilient, the external sector too is quite robust and the country has emerged stronger after every crisis as seen during Ukraine crisis or Covid pandemic due to the measures taken by the government and other stakeholders.

Malhotra also informed bankers that BRICS countries are in talks on linking their fast payment systems and central bank digital currencies (CBDC) to make cross border payments cheaper and more efficient.

"Cross-border payments is an area of interest for all of us, including the BRICS, because we ⁠feel there is a lot of scope for reducing cost." The BRICS organisation includes Brazil, Russia, India, China and South Africa, among others. India is hosting the 2026 edition of the annual summit.

“Various options are on the table, but it is still at discussion stage, including CBDCs (central bank digital currencies) and linkages of fast payment systems," he added.

He urged Indian banks to treat artificial intelligence as aboard-driven strategic commitment rather than a series of technology purchases, warning that institutions which delay will find the transition made for them.

AI would define this decade as digitalisation defined the 2000s and liberalisation the 1990s.

“The only question now before us is whether you shape the AI journey or you let it shape you by default,” he said.

He flagged seven broad risks from AI such as the explainability of black-box decisions, bias and exclusion perpetuated from historical lending data, concentration risk from a small pool of models and vendors, third-party dependencies, data privacy obligations, cyber and adversarial vulnerabilities, and the erosion of human accountability.

“Fairness in AI is not a compliance checkbox. It is a design requirement,” he said, adding that ultimate responsibility for a bank’s decision must rest with the bank, not the vendor or the algorithm.