RBI Governor Sanjay Malhotra says AI valuation correction could boost capital flows to India

A correction in overstretched artificial intelligence valuations in advanced economies could drive more foreign capital into India, Reserve Bank of India Governor Sanjay Malhotra said on Saturday.

Speaking at the Kautilya Economic Conclave in New Delhi, Malhotra warned that while a cooling AI investment cycle poses a risk of sharp asset repricing globally, India is well-positioned to benefit from any subsequent shift in international capital.

"If corrections in AI-related valuations were to happen in advanced countries, it may have a positive impact in terms of capital inflows," Malhotra said. He noted that Indian equity markets have already undergone their own orderly valuation adjustments in recent months.

Five threats to global stability

The RBI Governor identified stretched AI valuations as just one of five major vulnerabilities currently threatening global financial stability. The other four are elevated global debt, high leverage among non-bank financial intermediaries, expanding private credit risks, and cyber threats.

While Malhotra clarified that he does not see "imminent signs of stress" from any of these factors individually, he warned that a simultaneous occurrence of these shocks could heavily strain the global financial architecture.

"Today's resilience may not necessarily imply tomorrow's immunity," Malhotra said, urging regulators to remain alert.

The immediate danger of cyberattacks

Among the emerging risks, Malhotra singled out cyber threats amplified by AI as the most pressing. The rapid development of autonomous, highly capable AI tools has heightened the danger of cyberattacks, particularly within highly interconnected, borderless financial systems.

Because cybersecurity capabilities vary widely across different countries, a security breach in one jurisdiction can quickly cascade across the globe. Malhotra warned that the next major financial crisis might not start in the traditional banking system at all. Instead, it could be triggered by a geopolitical event, a cyberattack, or a major technological failure.

Building shock absorbers

Despite these external pressures and the ongoing conflict in West Asia, Malhotra said India’s economy is navigating the challenges from a "position of strength," supported by robust macroeconomic fundamentals and healthy balance sheets across banks and non-bank lenders.

Rather than attempting to eliminate all financial risks—which Malhotra warned would stifle innovation and investment—the goal for regulators should be to build a system robust enough to withstand the inevitable.

"We cannot prevent every shock," Malhotra said. "What we can ensure, however, is that the financial system acts as a shock absorber."