AI risk warning: Banks must prepare for cyber threats from advanced models like Mythos, says DFS Secretary Nagaraju

Financial Services Secretary M Nagaraju on Thursday warned banks and financial institutions to strengthen cyber security systems and operational resilience, cautioning that advanced artificial intelligence models such as Anthropic’s “Mythos” could pose serious risks to the banking sector if released publicly, PTI reported.Addressing the Indian Banks’ Association (IBA) conference on Risk Management in Mumbai, Nagaraju said regulators were increasingly concerned about the ability of advanced AI systems to identify and potentially exploit weaknesses in banking technology infrastructure.“I hope the banking community is prepared well to face in case Mythos is released publicly in the country,” Nagaraju said.Referring to cyber security threats, he said the Anthropic Mythos AI model has advanced capabilities that could expose vulnerabilities in legacy banking systems and interconnected financial networks.Nagaraju cautioned that banks remain highly exposed because of their dependence on legacy IT infrastructure, interconnected systems and real-time operational networks.“One successful cyber attack can cascade quickly across institutions and markets,” he warned.He stressed that operational continuity has now become central to financial stability and urged banks to continuously test their systems and preparedness.Nagaraju said lenders must strengthen incident response mechanisms, invest in cyber security capabilities and ensure that business continuity plans remain practical, updated and regularly tested.Highlighting the changing risk environment, he said risks facing banks are no longer confined to balance sheets and trade books.“In such an environment, risk management cannot be seen merely as an add-on to compliance or control functions, it must be viewed as a strategic capability,” he said.According to Nagaraju, banking risks are increasingly emerging from geopolitical developments, cyber attacks, operational disruptions, fraud, third-party dependencies, climate-related concerns, market volatility and changing customer behaviour.He, however, noted that the Indian banking sector has significantly strengthened over recent years through improved asset quality, stronger balance sheets, better capital positions and enhanced governance standards.