RBI Governor Warns Against AI Leverage and Market Volatility

Reserve Bank of India Governor Sanjay Malhotra stated that Indian government bond yields have risen only partially despite pressures from higher global bond yields and energy prices. Speaking at the 5th Kautilya Economic Conclave in New Delhi, Malhotra attributed this relative stability to India's credible monetary policy, prudent fiscal management, and declining structural inflation.

While noting India's prolonged financial stability, Malhotra warned against complacency. He specifically flagged risks from increased leverage and stretched asset valuations within the artificial intelligence sector, cautioning that a slowdown in AI spending or earnings could trigger a sharp repricing of financial assets and amplify market volatility.

Malhotra also identified rising leverage among non-bank financial intermediaries in advanced economies as a sign of a maturing financial cycle. He noted that these global trends could potentially spill over into broader banking markets.