Synopsis
India's central bank has identified soaring AI stock valuations globally as a financial stability risk, warning of potential market spillovers. Despite this, the Reserve Bank of India asserts that India's banking system remains robust, well-capitalised, and resilient to external shocks. Strong macroeconomic fundamentals and healthy balance sheets in both banks and non-banking financial companies provide a solid foundation, limiting the impact of global financial stress on the domestic economy.
The Reserve Bank of India has flagged soaring valuations in artificial intelligence-related stocks as a potential risk to financial stability, warning that any sharp correction in the sector could spill over to markets, even as it said India's banking system remains resilient enough to withstand severe economic shocks.
In its June 2026 Financial Stability Report (FSR), the central bank said global markets have remained buoyant despite geopolitical tensions, with optimism fuelled by "strong corporate earnings, the AI-driven investment boom, and easy financial conditions." But it cautioned that the same AI rally has also created fresh vulnerabilities.
"A sharp correction in global equity markets, particularly if driven by a reassessment of corporate earnings growth and elevated valuations in AI-related stocks, could spill over to domestic markets," the RBI said.
The report said risks from "elevated asset valuations and concentrated exposures due to substantial investments in AI" have become more pronounced, adding that together with high public debt, bond market fragilities and growing leverage among non-bank financial intermediaries, they could amplify future shocks to the global financial system.
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The central bank also highlighted the surge in borrowing by AI companies. Debt financing raised by major AI firms including Microsoft, OpenAI, Nvidia, Anthropic, Oracle, Amazon, Alphabet, Meta and CoreWeave touched $197 billion in 2025 before easing to $21 billion so far in 2026 (till June 10), according to Bloomberg data cited in the report.
For India, however, the RBI struck a more reassuring tone.
It said India's "macroeconomic fundamentals are stronger compared to many of its peers" and that a "robust and resilient financial system, underpinned by strong bank and non-bank balance sheets with adequate capital and liquidity buffers, provides a strong foundation." As a result, "the potential for external shocks to generate systemic financial stress and spill over to the real economy remains contained."
The report said scheduled commercial banks continue to be well-capitalised, with improving asset quality, stable profitability and healthy liquidity buffers. Macro stress tests showed banks' aggregate capital levels would remain above regulatory minimums even under adverse scenarios. Non-banking finance companies also remained financially sound, supported by improving asset quality and healthy capital and profitability ratios.
The RBI added that stress tests of mutual funds, clearing corporations and the insurance sector also pointed to resilience, although it cautioned that growing interconnectedness across financial institutions could become an additional channel for transmitting shocks during periods of stress.
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