RBI Governor Shaktikanta Das cautions financial sector over excessive dependence on AI

Shaktikanta Das, the Governor of Reserve Bank of India, warned that the excessive dependence on Artificial Intelligence (AI) could pose concentration risks within the financial sector.    

Das was addressing the 90th High-Level Conference organized by the Reserve Bank of India in New Delhi.

He highlighted that the growing use of AI might allow a few technology providers to dominate the market which in turn might pose systemic risks.   

"The heavy reliance on AI can lead to concentration risks, especially when a small number of tech providers dominate the market," said Governor Das.

The Governor also mentioned that AI brings new vulnerabilities like increased susceptibility to cyberattacks and data breaches. The lack of transparency in AI systems adds to the challenge, making it harder to audit or interpret the algorithms behind financial decisions."

"Additionally, AI's opacity makes it difficult to audit or interpret the algorithms which drive decisions. This could amplify systemic risks, as failures or disruptions in these systems may cascade across the entire financial sector" Das added.

He stressed upon the implementation of risk mitigation strategies by banks and financial institutions to address these risks. He emphasized that while AI and Big Tech provide substantial benefits, financial institutions must avoid becoming overly reliant on these technologies.  

"In the ultimate analysis, banks have to ride on the advantages of AI and Big Tech and not allow the latter to ride on them," Das warned.

He urged financial institutions to remain vigilant, highlighting the need for a balanced approach in leveraging AI's potential while addressing its inherent risks.

The Governor's remarks come at a time when AI and machine learning are increasingly being integrated into financial services, enhancing efficiency but also raising concerns about cybersecurity, transparency, and regulatory oversight.

With the rapid advancements in technology, the RBI is focused on ensuring that the financial sector remains resilient to both traditional risks and the emerging risks posed by AI and Big Tech.