RBI Governor Warns of AI Bubble and Global Debt

Reserve Bank of India Governor Sanjay Malhotra identified five primary vulnerabilities to global financial stability during the 5th Kautilya Economic Conclave in New Delhi on October 3, 2026. He flagged elevated global debt, stretched asset valuations in the artificial intelligence sector, high leverage in non-bank finance, private credit risks, and AI-amplified cyber threats. Malhotra warned that while no single risk is an imminent threat, their simultaneous occurrence could pressure the global financial architecture.

Malhotra noted that Indian government bond yields have risen only partially despite pressures from global energy prices and bond yields, attributing this stability to credible monetary policy and declining structural inflation. He suggested that a correction in AI valuations in advanced economies could potentially benefit India by redirecting capital inflows toward domestic markets. However, he cautioned that a slowdown in AI spending or earnings could trigger a sharp repricing of financial assets and amplify market volatility.

Addressing systemic resilience, Malhotra argued that the focus must shift from preventing inevitable shocks to strengthening the system's ability to contain them. He called for system-wide resilience that extends beyond banks to include payment systems and technology infrastructure. Regarding digital assets, Malhotra maintained a cautious approach toward cryptocurrencies to protect monetary sovereignty, though he noted that the central bank continues to promote underlying technologies like tokenization and central bank digital currencies to improve cross-border payments.