The newly appointed governor of the Reserve Bank of India (RBI), Sanjay Malhotra, has signaled that the monetary panorama will proceed to face vital challenges within the medium time period. He pointed to the rising uncertainties posed by the fast rise of new and emerging technologies.
“The medium-term outlook stays difficult, with draw back dangers from potential intensification of geopolitical conflicts, sporadic monetary market turmoil, excessive local weather occasions and rising indebtedness. Stretched asset valuations, fragilities within the much less regulated non-bank monetary intermediaries, and threats from new and rising applied sciences additionally add to the evolving unsure outlook,” Malhotra mentioned within the foreword of the December 2024 edition of RBI’s Financial Stability Report.
This marked Malhotra’s first public assertion on the Indian financial system since taking workplace because the RBI governor. Malhotra’s appointment comes at a time when India is grappling with slowing financial progress and inflation. Through the second quarter (July-September) of the present monetary yr, India’s economic growth slowed to five.4%, falling in need of market forecasts. This represents a pointy decline from the 7.6% progress recorded in the identical interval final yr and the 6.7% progress seen within the earlier April-June quarter.
Finance Minister Nirmala Sitharaman was quick to emphasize that the “lower than anticipated” 5.4% progress within the September quarter, which adopted the national elections, shouldn’t be used as a foundation for predicting future progress. She highlighted that the typical financial progress price over the previous three years has been 8.3%.
“Prospects for the Indian financial system are anticipated to enhance after the slowdown within the tempo of financial exercise within the first half of 2024-25. Client and enterprise confidence for the yr forward stay excessive and the funding situation is brighter as firms step into 2025 with sturdy steadiness sheets and excessive profitability,” Malhotra mentioned.
“We stay dedicated to growing a contemporary monetary system that’s customer-centric, technologically leveraged and financially inclusive,” Malhotra acknowledged within the Monetary Stability Report.
Being an engineer himself, Malhotra recently transitioned from his place as Income Secretary within the Finance Ministry to be appointed as the brand new RBI governor for a three-year time period starting December 2024. A 1990-batch officer of the Indian Administrative Service, Malhotra brings over three a long time of expertise in data expertise, finance, taxation, and public coverage.
Rising tech dangers within the monetary sector
Within the native monetary sector, there was a notable surge in focus on emerging technologies within the post-pandemic period. This shift is clear within the progress made, in addition to within the recognition and dedication highlighted within the annual stories of main banks and non-banking monetary firms (NBFCs), the Monetary Stability Report mentioned.
A latest survey carried out by the RBI in November 2024, aimed toward assessing the adoption of emerging technologies and their related dangers to the home monetary sector, revealed that cloud computing and artificial intelligence/machine learning (AI/ML) had been the 2 most generally applied applied sciences amongst main Indian banks.
Cloud computing helps decrease the price of monetary companies by offering simpler entry to infrastructure and enabling economies of scale. In the meantime, respondents primarily use AI/ML technologies for customer support, gross sales and advertising, threat administration, and processes associated to know your buyer (KYC) procedures.
Apparently, banks increasingly turn to outsourcing for rising applied sciences, doubtless pushed by the necessity for specialised IT experience and value effectivity, whereas inside assets stay focused on core capabilities. Concerning expenditure, the report famous that 61% of the responding banks have allotted lower than 10% of their IT funds to those initiatives within the present monetary yr, the Monetary Stability Report identified.
Survey respondents indicated that, in relative phrases, cloud computing and AI/ML are seen because the technologies carrying the highest risks. When it comes to particular threats posed by AI/ML, key considerations highlighted had been third-party vendor dangers, cybersecurity vulnerabilities, and potential reputational harm. Quantum computing was additionally seen as an rising expertise with vital dangers, significantly resulting from its potential to undermine encryption algorithms. Notably, over 80% of the respondent banks have totally or partially outsourced not less than one rising expertise.
When it comes to threat mitigation, banks have demonstrated comparatively higher preparedness in sustaining backup of essential knowledge. Bigger banks are proactive in adopting mitigation measures because of the availability of sufficient assets and experience. Nevertheless, common compliance audits and coaching of IT/ safety personnel are two vital areas that require enchancment, as per the respondents. Forensic preparedness and enterprise continuity plans additionally want enchancment to strengthen resilience towards rising technology-related incidents.
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