India's financial system strong despite West Asia tension, but stay alert, RBI Governor says

India's financial system is in a strong position at present despite the ongoing tension in West Asia, but that does not mean no danger will arise ahead. Reserve Bank of India (RBI) Governor Sanjay Malhotra stressed the need to remain vigilant on financial stability.

Malhotra said the strong financial position today does not guarantee that risks will not emerge in future. He was speaking at the Kautilya Economic Conclave.

He said the next financial crisis need not begin with a bank or a financial institution. In changing times, cyber attacks, geopolitical events and technical failures could also cause a financial crisis. These are likely to affect different parts of the financial system.

According to the RBI Governor, several factors could raise the risk of a crisis. The first is geopolitical events. Major global events can increase pressure on financial markets, and India too could feel the shock along with the rest of the world.

The second is cyber attacks. These could affect banking and online payment systems, so it is very important to remain alert. The third is technical failure. A major technical problem could affect banks, financial institutions and markets.

The fourth is spillover from other countries. An economic crisis that begins in one country can spread to others. Systems that depend on one another for trade are also directly dependent economically. If this balance is disturbed, it will not take long for the country's economy to be hit directly.

The fifth is high debt and risk-taking. Prolonged instability or an economic slowdown could lead people and institutions to take on more risk, which could increase debt.

The RBI Governor also stressed that financial stability is not limited to banks. It is therefore necessary to strengthen non-banking financial companies (NBFCs), the stock market, payment systems, technology infrastructure, critical third-party services and international financial networks.