Reserve Bank of India (RBI) Governor Shaktikanta Das has raised concerns over the growing reliance on artificial intelligence (AI) and big tech in the banking sector. Speaking at a conference organized by the RBI on October 14, 2024, Das emphasized that while these technologies offer opportunities for financial innovation, they also introduce significant risks that must be managed prudently.
Das highlighted that the widespread adoption of AI could lead to concentration risks, especially if a small group of technology providers dominate the financial services market. Such dominance could amplify systemic risks, as any disruption or failure in these AI systems might have a cascading effect across the entire sector. Additionally, the opacity of AI algorithms makes it challenging to audit and interpret decisions, raising concerns about market unpredictability.
The Governor also expressed worries over the increasing vulnerability of the banking system to cyberattacks and data breaches due to AI integration. As financial institutions move toward greater digitization, they must adopt robust risk mitigation strategies to prevent potential threats. He stressed that banks should leverage the benefits of AI and big tech without becoming overly dependent on these technologies to ensure financial stability.
Das further pointed out that misinformation and rumors spreading rapidly through social media could trigger liquidity stress. Therefore, banks need to remain vigilant, particularly in managing their social media presence, while also strengthening liquidity buffers to mitigate risks.
In conclusion, Das urged banks to remain proactive and resilient, ensuring they maintain control over the technology they deploy. The RBI is closely monitoring these developments and advising financial institutions to balance technological advancement with stability measures to safeguard the integrity of the financial system. (inputs from agencies)