Today’s resilience no guarantee for tomorrow: RBI Guv flags emerging financial risks
During the Kautilya Economic Conclave, Reserve Bank governor Sanjay Malhotra emphasized the critical need for a resilient financial infrastructure. He pointed out the significance of monitoring new vulnerabilities to ensure the system can withstand diverse shocks. Malhotra acknowledged that systemic risks are now more global and interconnected, leading to unique challenges.
Reserve Bank of India Governor Sanjay Malhotra warned on Saturday that while the financial sector remains resilient, today's resilience does not guarantee tomorrow's immunity. Speaking at the Kautilya Economic Conclave, Malhotra highlighted five priorities for policymakers, stressing that the focus should be on building a system capable of withstanding and containing shocks, rather than solely preventing them.
The governor cautioned that the financial system faces an evolving landscape of systemic risks, which are increasingly exogenous, cross-border, and interconnected. Malhotra emphasized the importance of understanding network dependencies and contagion channels better through scenario analysis, given that future financial crises may not originate from banks or within the financial sector.
Instead, they could stem from geopolitical events, cyber attacks, or technological failures. He called for enhanced monitoring and assessment frameworks backed by more granular data, particularly regarding non-banking financial institutions, interconnected exposures, technological advancements, and cross-border positions. Malhotra underscored that financial resilience must extend beyond banks to encompass NBFIs, financial markets, payment systems, technology providers, critical third parties, and cross-border networks.
While acknowledging the potential of financial innovation, he cautioned against undermining trust foundations such as sound institutions, settlement finality, single currency, and financial integrity. Malhotra stressed that the challenge lies in creating a financial system resilient to anticipated and unforeseen shocks, necessitating resilient institutions, improved data, robust markets, credible safety nets, and effective resolution mechanisms.
Regulation and supervision should be proactive and forward-looking while remaining proportionate. Malhotra concluded that successful financial stability would remain largely unseen, with invisibility representing the most valuable and meaningful measure of success for central banking.
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