India, May 2 --  Over the last week, technology journalists started to talk of a surge in synthetic loan applications powered by generative AI. In one documented case, a mid-sized digital lender received 1,400 applications over a single weekend. It was on the back of fabricated identities. There is also speculation on the identity of the lender. But it is reported as a mid-sized entity and that it had disbursed 38 loans before the fraud was detected.

The RBI has described such situations as alarming. The fintech industry has often responded that such incidents are isolated or contained. But both are missing the point. The crisis is not the occurrence of 1,400 fake loans; the crisis is that the architecture of India's digital econom...