India cenbank chief warns against financial stability risks from growing use of AI

MUMBAI (Reuters) - The growing use of artificial intelligence and machine learning in financial services globally can lead to financial stability risks and warrants adequate risk mitigation practices by banks, the Governor of the Reserve Bank of India said on Monday.

"The heavy reliance of AI can lead to concentration risks, especially when a small number of technology providers dominate the market," Shaktikanta Das said at an event in New Delhi.

This could amplify systemic risks as failures or disruptions in these systems may cascade across the financial sector, Das added.

India's financial service providers are using AI to enhance customer experience, reduce costs, manage risks and drive growth through chatbots and personalised banking.

The growing use of AI introduces new vulnerabilities like increased susceptibility to cyber attacks and data breaches, Das said.

AI's "opacity" makes it difficult to audit and interpret algorithms which drive lender's decisions and could potentially lead to "unpredictable consequences in the market," he warned.

Separately, Das said private credit markets have expanded rapidly across the globe with limited regulation, posing significant risks to financial stability, particularly since these markets have not been stress-tested in a downturn.

(Reporting by Siddhi Nayak; Editing by Eileen Soreng)