RBI's Malhotra lists five global risks, from AI valuations to private credit, but calls India very resilient

Victoria Shinder04 October 2026, 13:082 min read

Reserve Bank of India Governor Sanjay Malhotra devoted a speech at the Fifth Kautilya Economic Conclave on 3 October to financial stability. He said he was speaking not because the RBI sees signs of imminent stress, but because long periods of stability can encourage risk-taking and leverage while memories of past crises fade, a point he linked to Hyman Minsky. India's experience, he said, is that banking stress can build quickly and take years to resolve: cleaning up the bad loans of the early 2000s took nearly a decade.

Five global risks. Malhotra said the financial system had absorbed the supply shock from the West Asia conflict well, but the conflict had added to inflation pressures and vulnerabilities. He listed:

• elevated global debt, with shorter maturities and sharply higher sovereign yields, which could narrow fiscal space and push capital out of emerging markets with large non-resident holdings of government debt;
• stretched asset valuations, particularly AI-related, where a slowdown in AI investment or earnings could trigger a sharp repricing;
• elevated leverage at hedge funds, option sellers, exchange-traded funds and other non-bank institutions, increasingly interlinked with banks;
• private credit, where some high-profile defaults suggest weak lending standards;
• cyber risk compounded by AI. Individually none may be a concern now, he said, but their simultaneous occurrence could put significant pressure on the global financial system.

India's position. He described the Indian financial system as very resilient. Stress tests in the June 2026 Financial Stability Report kept banks' aggregate common equity tier 1 ratio comfortable under all adverse scenarios, and non-bank finance companies had an average capital adequacy ratio of 24.6% at the end of March, against a requirement of 15%. Private credit in India is still small and is not assessed as a risk. Indian government bond yields, he said, have risen only partially in response to higher global energy prices and yields, and equities have corrected from high valuations in an orderly way. He listed measures to reduce exposure to energy shocks, including diversifying import sources and building strategic petroleum reserves.

How the RBI works. The RBI Act does not explicitly mandate financial stability, he noted, but it is implicit in the Bank's functions. The RBI follows a separation principle, using regulatory and macroprudential tools rather than interest rates for financial stability, while keeping stability in mind in monetary policy. He closed with five priorities, including better and more granular data on non-banks and cross-border exposures, and a warning that the next crisis may not start in a bank, or in finance at all.

What it means

The speech is an assessment, not a policy change. Its list of global risks matches what other central banks have been saying in recent weeks, which makes India's own figures the useful part: a capital buffer in non-banks well above the minimum and a private credit market still too small to matter, set against a governor who chose to warn about complacency anyway.