RBI chief says the next financial crisis may start with a cyberattack

The next financial crisis may not start in a bank at all, India’s central bank governor has warned. Sanjay Malhotra said it could come from a war, a cyberattack or a tech failure, as Bloomberg reported.

He spoke at the Kautilya Economic Conclave in New Delhi on Saturday.

“It may begin with a geopolitical event, or cyber attack or a technological failure,” he said.

AI in the mix

The Reserve Bank of India governor singled out AI, Business Today reported. He said it has made cyber risks worse.

It also brings new risks from faulty models, reliance on outside suppliers and weaker human oversight, he said.

He also flagged high prices for AI stocks. A slowdown in AI spending or earnings could set off a sharp fall in asset prices, he warned.

Last month, Finance Minister Nirmala Sitharaman made a similar point. AI can help catch fraud faster, she said, but it also enables bigger cyberattacks.

India is not alone in its concern. In August, the Financial Stability Board said AI-driven cyberattacks were now the top risk to the global financial system.

In June, the ECB’s Christine Lagarde warned AI could trigger financial crises.

Strong, for now

Malhotra said India’s banks are healthy and well funded, but warned against complacency.

“Today’s resilience may not necessarily imply tomorrow’s immunity,” he said.

The war in Iran has pushed up commodity prices for India. Still, the economy grew 7.8% in the April to June quarter, Bloomberg reported.

The RBI announces its next rate decision on Wednesday. Most economists expect its first rate rise since early 2023, as inflation picks up.