Reserve Bank of India (RBI) Governor Sanjay Malhotra | Photo Credit: KS Gunasekar

Reserve Bank of India’s Governor Sanjay Malhotra on Saturday said that the domestic financial system remained resilient even as he flagged several risks. Meanwhile, Principal Secretary to the Prime Minister P K Mishra said that resilience is not free and the key question is whether the premium is justified by the risk.

Both were speaking at Kautilya Economic Conclave in the national capital.

Malhotra outlined five priorities for policymakers, stressing that financial stability should focus not on preventing shocks but on strengthening the financial system’s ability to withstand and contain their impact. “Today’s resilience may not necessarily imply tomorrow’s immunity, and we are committed to remain vigilant of emerging vulnerabilities and continue to keep our financial system strong and resilient,” he said, highlighting the resilience of the financial system supported by healthy balance sheets of banks and NBFCs.

Services that work even under stress

He said shocks, whether endogenous or exogenous, are inevitable and the objective should be to build a financial system capable of providing financial services even under severe stress. He also flagged a new generation of systemic risks that are increasingly exogenous, cross-border and interconnected.

The next financial crisis, he said, may not necessarily originate in a bank or even within the financial sector, but could begin with a geopolitical event, cyber-attack or technological failure and affect the financial system through multiple channels. He stressed the need to better understand network dependencies and contagion channels while making scenario analysis a cornerstone of risk management. He called for improvements in monitoring and assessment frameworks through better and more granular data.

On financial innovation, Malhotra said technologies such as artificial intelligence and tokenisation, as well as new forms of financial intermediation, could significantly improve efficiency, but innovation must not undermine the foundations of trust in the financial system. He emphasised sound institutions, settlement finality, singleness of money and financial integrity as fundamental properties that need to be preserved. “The challenge before us is to build a financial system that can withstand shocks that we can anticipate, and even those we cannot yet foresee,” he said.

Uncertainty looms

Meanwhile, addressing a plenary session, Mishra said said the nature of economic risk has changed significantly, with the world increasingly confronting not merely calculable risks but uncertainty that cannot be reliably assigned probabilities. The pandemic, geopolitical conflicts, supply-chain disruptions, trade restrictions and rapid technological changes, he said, have brought this distinction into sharp focus.

Speaking about India’s experience, Mishra said resilience cannot mean insulation from the world. “It has to mean the ability to remain open to the world without becoming excessively vulnerable to it.” He highlighted energy security, critical minerals, strategic industrial capabilities and diversification of external economic relationships as important elements of India’s response.

He stressed that resilience must be accompanied by productivity and competitiveness. Building domestic capability, he said, should not mean replacing imports at any cost, but creating capabilities that are competitive, scalable and ultimately capable of serving global markets. He cited the transformation underway in electronics, semiconductors, pharmaceuticals and other strategic sectors.

Lastly Mishra said resilience is not a choice between self-sufficiency and globalisation. “The more rational approach lies between the two: domestic capability where vulnerability is strategic; diversification where concentration is risky; and openness wherever global integration strengthens productivity and competitiveness.”

Published on October 3, 2026