Rapid Digitisation Changing Nature of Banking Risks: RBI Deputy Governor

In spite of such speedy technological changes that are taking place in the Indian banking industry, there has been a stern message from the regulatory authorities concerning risk management in banks. Reserve Bank of India Deputy Governor R. Gandhi has warned that because of speedy digital expansion in banks, there has been a change in the pattern of risks in finance. RBI Deputy Governor R. Gandhi made this warning during the third global annual conference of the College of Supervisors held in Mumbai.

The Deputy Governor stated that old standards of bank supervision may not be sufficient in the current technology-driven environment. Banks today face new challenges, including platform-based distribution, changes in payment systems, and rapidly evolving invisible threats.

Elaborating on the rapidity with which risks evolve in the digital age, he said that risks now evolve in hours, not weeks. With developments in the digital world, stress also spreads just as quickly. Customer growth, the spread of misinformation, and liquidity crises can escalate in a very short time. This requires strengthening supervisory responses, including early detection and prompt action.

Highlighting the hidden risks in the banking ecosystem, the Deputy Governor said that many institutions often rely on the same service providers, cloud platforms, data vendors, and cybersecurity tools. This creates a "shared risk" that is not reflected in traditional financial ratios, but is a real threat. He emphasized that risk assessment no longer needs to be based on the individual institution level, but on the "concentration" within the banking ecosystem.

Regarding the increasing use of artificial intelligence (AI) and machine learning, he stated that while this improves efficiency, it also raises new questions of accountability and fairness. Regarding cybersecurity, he stated that digital banking has increased the avenues for intrusion. The threat now comes not just from ordinary hackers, but from organized and well-funded groups. Despite the bank's strong internal controls, a single vulnerability by a vendor or partner can compromise the entire system.

The Deputy Governor concluded by stating that customer security is of prime significance. He pointed out the dangers of mis-selling, data abuse, and aggressive recovery practices in digital lending. He warned that customer losses in the digital environment could quickly escalate into trust issues, which could further pose a serious liquidity problem for the bank.