Shaktikanta Das Urges Emerging Economies to Strengthen Risk Buffers Amid Growing AI Adoption in Banking

14 Oct 2024 , 01:01 PM

Shaktikanta Das, governor of the Reserve Bank of India, addressed the RBI@90 High-Level Conference on Monday and advised banks to enhance their liquidity buffers to deal with any unexpected event, as well as cautioning them about social media and AI usage.

Das stated that the expanding usage of AI brings new vulnerabilities, such as increased susceptibility to cyber attacks and data breaches.

The “opacity” of AI makes it harder to audit and explain algorithms that drive lender choices, potentially leading to “unpredictable consequences in the market,” he said.

“Banks must remain vigilant in the social media space and strengthen their liquidity buffer to deal with any unforeseen situation,” said RBI Governor Das during his talk.

In addition, Das stated that technologies represent a risk to financial stability. “The heavy reliance on AI can lead to concentration risks, especially when a small number of tech providers dominate the market,” the head of the RBI stated.

Governor Das, while raising worries for banks amid rising AI adoption internationally, has requested lenders and other financial institutions to implement effective risk mitigation measures to address all of 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,” according to Das.

Separately, Das stated that private lending markets have grown fast around the world with little oversight, creating substantial threats to financial stability, particularly since they have not been tested in a downturn.

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