RBI Governor Warns: Excessive AI Reliance Threatens Financial Stability, Urges Banks to Use AI Wisely

RBI Governor Expresses Concerns Over AI’s Growing Risks

Introduction
The Governor of the Reserve Bank of India (RBI), Shaktikanta Das, raised concerns over the increasing risks associated with Artificial Intelligence (AI). He emphasized that excessive dependence on AI could escalate financial vulnerabilities, potentially posing a threat to financial stability.

AI Could Increase Financial Instability

Speaking at an event titled “Central Banking at Crossroads” during RBI’s 90th anniversary celebrations in New Delhi on Monday, Das addressed the global rise in debt and expressed his worries regarding the matter. He stated that such financial imbalances are not beneficial for monetary policy and economic stability. Das also called for international cooperation to tackle challenges arising from geopolitical tensions and climate risks.

AI and Machine Learning Driving Business Profits

Das acknowledged that the development of advanced technologies like AI and Machine Learning (ML) has opened new pathways for financial institutions to enhance their business operations and profitability. However, these technologies also pose increasing risks to financial stability, especially when the market is dominated by only a few key players.

Banks Must Use AI Responsibly

Das stressed that while AI has immense potential, its system is not entirely transparent. As a result, auditing or decoding the algorithms that drive decision-making becomes complex, creating significant risks for the financial market. He urged banks to leverage AI and Big Tech responsibly but not allow themselves to be exploited by these technologies.