The Reserve Bank of India shares knowledge that helps you to get a sense of factors influencing your money. Every two months, they publish a monetary policy report that gives you the factors affecting inflation and the interest rate outlook. There is commentary on the economic growth, too. The Financial Stability Report is published twice a year in June and December. The latest report discusses at length how artificial intelligence influences financial stability. The state of borrowing by governments, businesses, and households provides a picture of the economy's overall debt burden. It also lists out factors that could pose a risk to the financial system. It matters to your financial well-being, and it is good to be aware of the challenges your money faces ahead.
The latest report discusses a new survey of banks and non-banking financial companies. AI-enabled cyberattacks emerged as the single most critical near-term challenge in the survey over the next 12 months. While there are many advantages for financial markets, AI is also enabling bad actors to launch cyber incidents at a scale, speed, and sophistication never seen before. The survey points out that cybercriminals are exploiting human behaviour through advanced phishing and social engineering. Regulators like the RBI are actively deploying AI to protect everyday consumers. The report explains the launch of Project SUDARSAN, an AI-driven fraud-detection initiative aimed at identifying and mitigating fraudulent activity before it harms everyday account holders.
The advantage of AI lies in its predictive nature. That is useful to you for both investing and borrowing. For regulators like the RBI and the Securities and Exchange Board of India, it is helpful for identifying potential risks to the financial system.
When it comes to the impact on you, the ease of borrowing money is a potential risk to household finances. Your borrowing habits are now increasingly finding a digital footprint. The RBI report notes that if you are a younger borrower, you are likely interacting with AI-driven or digital-first lenders. Fintech firms have captured a massive 56.8% market share of small-ticket personal loans. These are loans of up to Rs 50,000 that you can use for expenditure. Banks and non-banking finance corporations call them unsecured loans as they do not require you to give any collateral to the bank or the lending company. Fintech companies are leading lenders to you for such loans, with nearly 60% market share. Most of you who are digitally savvy are borrowers in that category.
The RBI’s financial stability flags a note of caution to you about using the convenience of these digital platforms to borrow. There is a significant jump in delinquencies. That means 6 rupees out of 100 rupees borrowed digitally are not being repaid to the bank. From your standpoint, you need to remain prompt while repaying such loans. Your credit score is affected if you delay or do not pay.
When it comes to your investments, the financial stability report highlights other macroeconomic factors that could hurt the global financial system. Indirectly, it would hurt India and your money too.
The FSR report notes that AI-related investments are now seen across capital markets, including bond markets. As companies that make microchips, processors and AI language models ramp up capital expenditure on AI buildout, they face declining free cash flows. Consequently, they have significantly increased borrowing through debt issuances over the past two years to fund these investments. Debt financing is expected to rise significantly as spending expands further. Thus, an AI-driven asset price correction could pose systemic risks through this channel. That means if interest rates rise or businesses are unable to meet expected profit targets, it would hurt global financial markets, the report warns.
While India is largely out of the AI-led euphoria, investors and lenders focus on markets that are innovators or manufacturers. However, any significant disruption in global financial markets would have ripple effects on India.