No sign of stress, but cost of allowing vulnerabilities to build ‘simply too high’, says RBI Governor

Reserve Bank of India Governor Sanjay Malhotra, speaking at the annual Kautilya Economic Conclave, emphasized the importance of vigilance despite the prolonged period of financial stability in India. He cautioned that while the current resilience may not guarantee immunity tomorrow, India has experienced in the past that banking and financial stresses can build quickly and take years to resolve.

Malhotra highlighted that prolonged stability can lead to risk-taking and faded memories of past crises, weakening the appetite for prudence. He stressed the need to remain alert to potential risks. The Governor noted that the global economy has weathered multiple shocks since the Covid pandemic, but these periods of stability can encourage risk-taking and lead to market corrections.

Malhotra also mentioned that AI investment cycle maturity and potential earnings slowdown in AI firms could trigger sharp repricing of financial assets.