India’s Financial Stability and Development Council (FSDC) has identified the rapid adoption of AI and rising global bond yields as key risks to the domestic financial system. During its 30th meeting, Finance Minister Nirmala Sitharaman called for stronger inter-regulatory coordination, improved cybersecurity for rural banks, and faster recovery of unclaimed financial assets. The council also pushed for simplified KYC for foreign investors to boost market participation.
The Financial Stability and Development Council (FSDC) held its 30th meeting in New Delhi to assess the health and security of India’s financial markets. Chaired by Finance Minister Nirmala Sitharaman, the council brought together heads of major regulators, including the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA).
A primary focus of the discussion was on emerging risks that could affect the entire financial system. The council highlighted that the intersection of the rapid artificial intelligence (AI) surge and rising global bond yields could create market volatility. When global bond yields rise, it typically makes borrowing more expensive and can lead to changes in investor sentiment across global markets. The council noted that these factors, combined with ongoing geopolitical tensions, require proactive strategies to protect the domestic economy from external shocks.
Beyond risk management, the council discussed ways to expand digital public infrastructure to make credit more accessible. This includes the Unified Lending Interface and the Account Aggregator framework, which are designed to help micro, small, and medium enterprises (MSMEs) secure loans more easily by leveraging digital financial data. To further support market growth, policymakers are looking at tokenizing real-world assets and simplifying the KYC process. These changes aim to provide a faster, more efficient digital experience for foreign portfolio investors and non-resident Indians looking to invest in India.
Cybersecurity also occupied a significant portion of the agenda. With cyber threats becoming more sophisticated, the government is working on a comprehensive strategy in partnership with the Ministry of Electronics and Information Technology. A key priority is strengthening the digital defenses of regional rural banks, which serve a large portion of the population and may be more vulnerable to technical disruptions.
Finance Minister Sitharaman also addressed the issue of unclaimed financial assets through the 'Your Money, Your Right' campaign. This initiative is aimed at helping citizens reclaim dormant bank deposits, insurance proceeds, and shares that have remained unclaimed for long periods. The council has tasked relevant ministries with working at the district level to reduce these backlogs, emphasizing the need for regular meetings to ensure the financial system stays resilient in a changing global economic climate.
For investors, the key monitoring points will be the implementation of these cybersecurity measures and the progress in clearing unclaimed assets. Any further regulatory updates on the digital onboarding process for foreign investors or updates on how regulators plan to monitor AI-related financial risks will also be important for market participants to watch.