RBI deputy governor highlights impact of transformational technologies on banking

T Rabi Sankar, Deputy Governor, Reserve Bank of India, has highlighted the impact of transformational technologies on banking sector in a latest speech. He noted that every aspect of finance, from payments and credit to savings, investments, regulation and supervision, is already being redefined through technology. With powerful technologies like artificial intelligence (AI) and quantum computing already under way, our challenge is how to embrace them with wisdom and purpose, and ensure that technological evolution is secure, inclusive, resilient, and future-ready.

Sankar stated that India's experience in digitisation shows that countries who harness technology with foresight and responsibility will not only adapt to change but shape it. India's banking system has passed through two-and-a-half decades of innovations in payment technology - starting from ATM networking and moving through a gamut of retail and wholesale digital payment instruments like RTGS, NEFT and IMPS to the game-changing UPI and continuing on to experimenting with digital currency.

Banks are special entities, unlike any other business. They have an important socioeconomic role, that of creating money. Because of this role, banks are licensed and closely regulated and supervised. This arrangement works to the benefit of banks, because entry is not free and there is some degree of underwriting by the State. It also has a disadvantage that banks have to bear the cost of regulation, both financially and in terms of the obligation to follow prudential processes.

One corollary of this somewhat protected environment within which banks operate is that their innovation edge is blunted. This is probably the reason banks did not fully appreciate the potential benefits of UPI, as keenly as the fintech players did. He opined that it is time the banking system thought hard and deep about the challenges from the transformational technology changes we are living through. Technologies like artificial intelligence, blockchain, quantum and digital currencies, will shape the next decade of financial transformation. These technologies pose challenges that are fundamental to banks.

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