RBI governor Shaktikanta Das has warned that increased digital interconnectedness can lead to systemic risks even as he counted the strides made in the financial sector due to increased digitalisation.
“Digitalisation also presents challenges related to cybersecurity, data privacy, data bias, vendor and third-party risks, and customer protection. Increased inter-connectedness may lead to systemic risks. Additionally, emerging technologies can introduce complex products and business models with risks that users may not fully understand, including the proliferation of fraudulent apps and mis-selling through dark patterns. Digitalisation may induce human resource challenges in the financial sector, necessitating strategic investments in upskilling and reskilling,” Das said in the foreword to RBI’s Report on Currency and Finance (RCF) for the year 2023-24.
In this rapidly evolving landscape, balancing financial stability, customer protection and competition will remain the key policy challenge. Regulatory and supervisory frameworks must scale up and become more sophisticated to navigate these complexities and future-proof the financial system, he said.
The goal is to balance effective regulation with fostering financial innovations in a safe, robust and trustworthy ecosystem, Das added. “The Reserve Bank has taken several measures in this regard, including the issuance of guidelines on account aggregators, peer-to-peer lending, digital lending, regulatory sandbox, Reserve Bank Innovation Hub, framework for self-regulatory organisations and strengthening of the supervisory approach by going beyond an entity-focused approach towards a more thematic and activity-based approach,” he said.
The central bank is also fostering a strong risk culture focused on customer centricity, governance and business conduct in financial sector entities to promote a sustainable and resilient financial sector, he added.
The growth drivers
Digitalisation in finance is paving the way for next-generation banking; improving access to financial services at affordable costs; and enhancing the impact of direct benefit transfers by effective targeting of beneficiaries in a cost-efficient manner, he said. Loans in the retail segment are being enabled by online payments and innovative credit assessment models with instant disbursements. E-commerce is being boosted through embedded finance.
All these innovations are making financial markets more efficient and integrated, he said.
“On the external front, digitalisation is driving growth in India’s services exports and lowering remittance costs. India’s digital journey is setting a benchmark for peer economies. The Reserve Bank’s initiatives for internationalisation of home-grown payment modes, cross-border fast payment network linkages and knowledge and experience sharing with peers is energising the transformation of its digital public infrastructure as a global public good,” Das added.
