Reserve Bank of India Governor Sanjay Malhotra on Saturday warned policymakers and the financial sector against complacency, saying India's prolonged financial stability should not be mistaken for immunity against future shocks. Speaking at the annual Kautilya Economic Conclave in New Delhi, he said banking stress can build overnight even as it takes years to resolve.
"Today's resilience may not necessarily imply tomorrow's immunity," Malhotra said, adding that long periods of stability can encourage risk-taking and leverage while fading memories of past crises weaken the appetite for prudence. He recalled that it took more than a decade to clean up the legacy of excessive lending and bad loans from the early 2000s, and cautioned that the economic and financial costs of letting vulnerabilities build up are simply too high.
West Asia Shock Absorbed, But Risks Remain
The RBI governor said the Indian financial system had absorbed the supply shock from the West Asia conflict quite well and growth had stayed resilient. Still, he said the global environment remains challenging, with the conflict exacerbating inflationary pressures and elevating vulnerabilities in the financial system. He pointed to geopolitical and economic fragmentation, trade restrictions, repeated supply shocks, technological disruption and climate change interacting in ways that are difficult to predict or model using historical relationships.
AI Valuation Risks and Market Pressures
Malhotra flagged the possible maturing of the AI investment cycle as a risk, warning that a slowdown in earnings at major AI firms could trigger a sharp repricing of financial assets, amplified by high risk appetite and rising leverage. At the same time, he noted that corrections in AI valuations in advanced countries could bring positive capital inflows to India.
The Indian Express reported that foreign investors have sold Indian stocks and bonds worth $10.35 billion so far in 2026-27, on top of $16.59 billion of sales in 2025-26, while the rupee is trading close to its all-time low of 96.96 per dollar despite the RBI's forex drive since June attracting over $130 billion from NRIs. Net FDI in the first four months of 2026-27 stood at $13.43 billion, up 38% from the same period last year.
Sources: The Indian Express: RBI Governor Warns Against Complacency
"Today's resilience may not necessarily imply tomorrow's immunity," Malhotra said, adding that long periods of stability can encourage risk-taking and leverage while fading memories of past crises weaken the appetite for prudence. He recalled that it took more than a decade to clean up the legacy of excessive lending and bad loans from the early 2000s, and cautioned that the economic and financial costs of letting vulnerabilities build up are simply too high.
West Asia Shock Absorbed, But Risks Remain
The RBI governor said the Indian financial system had absorbed the supply shock from the West Asia conflict quite well and growth had stayed resilient. Still, he said the global environment remains challenging, with the conflict exacerbating inflationary pressures and elevating vulnerabilities in the financial system. He pointed to geopolitical and economic fragmentation, trade restrictions, repeated supply shocks, technological disruption and climate change interacting in ways that are difficult to predict or model using historical relationships.
AI Valuation Risks and Market Pressures
Malhotra flagged the possible maturing of the AI investment cycle as a risk, warning that a slowdown in earnings at major AI firms could trigger a sharp repricing of financial assets, amplified by high risk appetite and rising leverage. At the same time, he noted that corrections in AI valuations in advanced countries could bring positive capital inflows to India.
The Indian Express reported that foreign investors have sold Indian stocks and bonds worth $10.35 billion so far in 2026-27, on top of $16.59 billion of sales in 2025-26, while the rupee is trading close to its all-time low of 96.96 per dollar despite the RBI's forex drive since June attracting over $130 billion from NRIs. Net FDI in the first four months of 2026-27 stood at $13.43 billion, up 38% from the same period last year.
Sources: The Indian Express: RBI Governor Warns Against Complacency
