14 october 2024 : Reserve Bank of India (RBI) Governor Shaktikanta Das warned on Monday that an over-reliance on artificial intelligence (AI) could create concentration risks within the financial sector. Speaking at the 90th High-Level Conference in New Delhi, he highlighted concerns that the growing adoption of AI could allow a small number of technology providers to dominate the market, potentially posing systemic risks.
Das stated, “Heavy reliance on AI can lead to concentration risks, especially when a few tech providers control the market.” He also pointed out that AI introduces new vulnerabilities, such as an increased risk of cyberattacks and data breaches. The lack of transparency in AI systems complicates matters further, making it challenging to audit or understand the algorithms that influence financial decisions.
“Moreover, the opacity of AI makes it difficult to audit or interpret the algorithms driving decisions. This could exacerbate systemic risks, as any failures or disruptions in these systems might have a ripple effect across the financial sector,” he added.
The Governor emphasized that banks and financial institutions must implement robust risk mitigation strategies to counter these challenges. While acknowledging the significant benefits that AI and Big Tech can provide, he cautioned that financial institutions should not become excessively dependent on these technologies.
“In the end, banks need to leverage the advantages of AI and Big Tech without allowing these entities to gain control over them,” Das warned. He urged financial institutions to remain vigilant and adopt a balanced approach that harnesses AI’s potential while addressing its associated risks.
His comments come amid a growing integration of AI and machine learning in financial services, which, while enhancing efficiency, raises concerns regarding cybersecurity, transparency, and regulatory oversight. The RBI is focused on ensuring the financial sector’s resilience against both traditional and emerging risks posed by AI and Big Tech.
