Reliance on third-party technology providers requires robust risk management practices by banks: RBI DG Jain

Banks must carefully manage the adoption of new technologies and ensure adequate controls and safeguards to address potential vulnerabilities, according to Reserve Bank of India Deputy Governor MK Jain.

Additionally, the reliance on third-party technology providers requires robust due diligence and risk management practices to mitigate the risks associated with outsourcing.

“Banking is undergoing a significant technology revolution, driven by the emergence of fintech companies. This is pushing traditional banks to embrace digital transformation and become agile and innovative.

“While technology brings numerous benefits, such as increased efficiency and improved customer experiences, it also presents varied risks,” Jain said at the 25^th SEACEN-FSI Conference of the Directors of Supervision of Asia Pacific Economies in Mumbai. 

Data privacy

The Deputy Governor observed that closely linked to technology is the issue of data.

“The banking industry, by the nature of its business, possesses a wealth of data that can be leveraged for various purposes. This data covers customer information, financial transactions, credit histories, and more.

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“While there are significant opportunities to derive value from this data, it is crucial to acknowledge and address the inherent risks associated with its handling, including those relating to data breaches and privacy concerns,” Jain said.

The Deputy Governor emphasised that supervisors need to examine IT issues holistically.

Future proofing

“It is crucial to determine whether banks have the capacity to develop robust IT systems that align with their business strategies. Future-proofing banks’ IT infrastructure becomes imperative, necessitating strategic investments in both capital and operational expenditure.

“As virtual work environments and cyber risks become more prevalent, effective IT governance takes on heightened sign,” he said.

He underscored that data analytics empowers supervisors with the ability to extract valuable insights from vast amounts of data.

This enables them to make data-driven decisions, identify risks, and take timely actions to safeguard financial stability.

“By leveraging the power of data analytics, banking supervisors can considerably strengthen their supervisory frameworks,” Jain said.

The Deputy Governor said as banks adopt new technologies, it is essential for supervisors to be equipped with the necessary knowledge, skills, and resources to effectively supervise and regulate these advancements.