October 14, 2024: The rapid integration of artificial intelligence (AI) and machine learning into the financial services sector could pose significant risks to financial stability, Reserve Bank of India (RBI) Governor Shaktikanta Das warned on Monday. Speaking at an event in New Delhi, Das highlighted the need for robust risk mitigation practices among banks to address these emerging challenges.

Das pointed out that the heavy reliance on AI technologies might lead to concentration risks, particularly if a few dominant technology providers control the market. “This concentration can amplify systemic risks, where failures or disruptions in these systems could have cascading effects throughout the financial sector,” he stated.

While acknowledging that Indian financial service providers are leveraging AI to enhance customer experiences, streamline operations, and drive growth, Das underscored the potential vulnerabilities introduced by this technology. “Increased susceptibility to cyber-attacks and data breaches are significant concerns as we embrace AI,” he noted.

The governor also emphasized the challenges posed by AI’s "opacity," which complicates the auditing and interpretation of algorithms that influence lending decisions. “This opacity could lead to unpredictable market consequences,” Das warned, calling for a careful approach to the adoption of AI in finance.