RBI Governor Sanjay Malhotra urges caution on crypto and AI risks

Reserve Bank of India (RBI) Governor Sanjay Malhotra has expressed a cautious stance toward cryptocurrencies, citing concerns over monetary sovereignty, monetary policy, and capital flow restrictions. Speaking at the Kautilya Economic Conclave, Malhotra noted that while the central bank supports underlying technologies like distributed ledger technology and tokenization, it remains wary of private cryptocurrencies. He suggested that Central Bank Digital Currencies (CBDCs) could serve as a viable solution for cross-border payment challenges.

Malhotra also identified a potential slowdown in the global artificial intelligence (AI) investment cycle as a systemic risk that could lead to asset repricing and market volatility. However, he noted that such a correction might redirect capital inflows toward India, given the country's strong macroeconomic fundamentals and resilient banking sector.

Regarding domestic stability, a report from Nuvama Institutional Equities indicated that potential RBI rate hikes are unlikely to cause widespread asset quality stress for non-banking financial companies (NBFCs), provided there are no major macroeconomic shocks. Malhotra concluded by warning that prolonged periods of financial stability can lead to excessive risk-taking and leverage, urging continuous vigilance.