‘Next financial crisis may not start in a bank’: Sanjay Malhotra flags new systemic risks amid global shocks
Sanjay Malhotra warned that the next financial crisis may not originate in the banking system, as geopolitical events, cyberattacks and technological failures increasingly threaten financial stability. The RBI Governor said growing global interconnectedness requires stronger system-wide resilience and better risk monitoring.
- Oct 3, 2026,
- Updated Oct 3, 2026 3:05 PM IST
RBI Governor Sanjay Malhotra warned that the next financial crisis may not originate in the banking system, as geopolitical events, cyberattacks and technological failures increasingly threaten financial stability. The RBI Governor said growing global interconnectedness requires stronger system-wide resilience and better risk monitoring.
The next financial crisis may not necessarily originate in a bank or even within the financial sector, Reserve Bank of India Governor Sanjay Malhotra said, pointing to a new generation of interconnected risks that could spread rapidly across the global financial system.
Speaking at the Fifth Kautilya Economic Conclave on October 3, Malhotra said, “The next financial crisis may not originate in a bank, or even in finance. It may begin with a geopolitical event, a cyberattack, or a technological failure and affect the financial system through multiple channels.”
New generation of systemic risks
Malhotra said policymakers need to understand how risks interact across financial institutions, markets, technology and borders. “A new generation of systemic risks is taking shape,” he said, adding that assessing these risks and their complex interactions is vital.
He said risks are increasingly “exogenous, cross-border and interconnected”, making traditional approaches to assessing financial stability less adequate.
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The RBI Governor identified elevated global debt as one of the key vulnerabilities. Global debt-to-GDP levels have risen, maturity periods have shortened and sovereign bond yields have hardened sharply. Higher borrowing costs could narrow fiscal space for governments and put pressure on corporate debt-servicing capacity.
He also flagged stretched asset valuations, particularly in the AI sector. The AI investment cycle has supported global markets, but “any slowdown in AI investment or earnings could trigger a sharp repricing of financial assets”, particularly across the AI value chain.
AI and cyber risks add another layer
Malhotra said AI is also creating new cyber and model risks. “The emergence of AI has heightened cyber risks, model risk, third-party dependence, and erosion of human oversight and accountability,” he said.
He said the highly interconnected nature of financial systems means differences in cyber capabilities and resilience between countries can have consequences well beyond the jurisdiction where a weakness originates.
India, meanwhile, remains exposed to global shocks but is navigating the current environment from a position of strength, Malhotra said. The West Asia conflict has increased commodity-price and external-sector pressures, but “strong macroeconomic fundamentals and a resilient financial system provide confidence in our ability to withstand this lingering shock.”
ALSO READ: RBI Governor: Today's resilience may not imply tomorrow's immunity
India’s financial system remains resilient
Malhotra said Indian equity markets have corrected in recent months, but the movement has remained orderly. He also said private credit in India remains small and is not currently assessed as a risk, while NBFCs remain strong despite increasing interconnectedness with banks.
The June 2026 Financial Stability Report stress tests reaffirmed the resilience of the banking system. NBFCs had an average CRAR of 24.6% as of March 31, 2026, against the regulatory requirement of 15%.
But Malhotra cautioned that resilience today cannot be taken for granted. “Today’s resilience may not necessarily imply tomorrow’s immunity,” he said, stressing the need to remain vigilant about emerging vulnerabilities.
He called for better data, scenario analysis and system-wide resilience spanning banks, NBFCs, financial markets, payment systems, technology infrastructure and cross-border financial networks.
DO READ: RBI MPC meet: Why your borrowing costs may go up from October
RBI Governor Sanjay Malhotra warned that the next financial crisis may not originate in the banking system, as geopolitical events, cyberattacks and technological failures increasingly threaten financial stability. The RBI Governor said growing global interconnectedness requires stronger system-wide resilience and better risk monitoring.
The next financial crisis may not necessarily originate in a bank or even within the financial sector, Reserve Bank of India Governor Sanjay Malhotra said, pointing to a new generation of interconnected risks that could spread rapidly across the global financial system.
Speaking at the Fifth Kautilya Economic Conclave on October 3, Malhotra said, “The next financial crisis may not originate in a bank, or even in finance. It may begin with a geopolitical event, a cyberattack, or a technological failure and affect the financial system through multiple channels.”
New generation of systemic risks
Malhotra said policymakers need to understand how risks interact across financial institutions, markets, technology and borders. “A new generation of systemic risks is taking shape,” he said, adding that assessing these risks and their complex interactions is vital.
He said risks are increasingly “exogenous, cross-border and interconnected”, making traditional approaches to assessing financial stability less adequate.
MUST READ: 'US took 100 years, India needs just one decade to develop': Nara Lokesh at Pan-IIT AP Summit 2026
The RBI Governor identified elevated global debt as one of the key vulnerabilities. Global debt-to-GDP levels have risen, maturity periods have shortened and sovereign bond yields have hardened sharply. Higher borrowing costs could narrow fiscal space for governments and put pressure on corporate debt-servicing capacity.
He also flagged stretched asset valuations, particularly in the AI sector. The AI investment cycle has supported global markets, but “any slowdown in AI investment or earnings could trigger a sharp repricing of financial assets”, particularly across the AI value chain.
AI and cyber risks add another layer
Malhotra said AI is also creating new cyber and model risks. “The emergence of AI has heightened cyber risks, model risk, third-party dependence, and erosion of human oversight and accountability,” he said.
He said the highly interconnected nature of financial systems means differences in cyber capabilities and resilience between countries can have consequences well beyond the jurisdiction where a weakness originates.
India, meanwhile, remains exposed to global shocks but is navigating the current environment from a position of strength, Malhotra said. The West Asia conflict has increased commodity-price and external-sector pressures, but “strong macroeconomic fundamentals and a resilient financial system provide confidence in our ability to withstand this lingering shock.”
ALSO READ: RBI Governor: Today's resilience may not imply tomorrow's immunity
India’s financial system remains resilient
Malhotra said Indian equity markets have corrected in recent months, but the movement has remained orderly. He also said private credit in India remains small and is not currently assessed as a risk, while NBFCs remain strong despite increasing interconnectedness with banks.
The June 2026 Financial Stability Report stress tests reaffirmed the resilience of the banking system. NBFCs had an average CRAR of 24.6% as of March 31, 2026, against the regulatory requirement of 15%.
But Malhotra cautioned that resilience today cannot be taken for granted. “Today’s resilience may not necessarily imply tomorrow’s immunity,” he said, stressing the need to remain vigilant about emerging vulnerabilities.
He called for better data, scenario analysis and system-wide resilience spanning banks, NBFCs, financial markets, payment systems, technology infrastructure and cross-border financial networks.
DO READ: RBI MPC meet: Why your borrowing costs may go up from October