The integration of artificial intelligence (AI) in financial services is a double-edged sword, enhancing capabilities while possibly threatening financial stability. India's Reserve Bank Governor, Das, highlighted concerns over growing AI and machine learning usage in global financial services, urging banks to implement adequate risk mitigation measures.
In a recent event in New Delhi, Das emphasized the dangers of relying heavily on AI, especially when a few tech providers dominate the market. He warned that system failures or interruptions could escalate into systemic risks affecting the entire financial sector.
Currently, AI is employed by Indian financial service providers to improve customer experience, reduce costs, manage risks, and facilitate growth through chatbots and personalized banking. However, its increasing use introduces vulnerabilities such as a higher susceptibility to cyberattacks and data breaches.
Das cautioned that the opaque nature of AI complicates the auditing and interpretation of algorithms driving lending decisions, potentially leading to unpredictable market consequences.
Adding to the worries, Das pointed out the rapid expansion of private credit markets with limited regulation poses significant risks to financial stability, particularly since these markets have not been stress-tested during downturns.
These sentiments echo concerns previously raised by U.S. Securities and Exchange Commission Chair Gary Gensler, who noted that excessive use of similar AI systems by brokers and fund managers could lead to future market disruption. While Gensler acknowledged AI's potential for innovation and increased market accessibility, he stressed the necessity for algorithmic diversity and fraud prevention.
