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Informist, Friday, Feb. 21, 2025

 

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--RBI Rao: Compliance must become core component of digital strategy 
--RBI Rao: Fincl entities must invest in proper governance framework 
--RBI Rao: Determing optimal level of regulation remains a challenge 
--RBI Rao: Saw concerns related to unsecured personal loans of late 
--RBI Rao: AI should be used to support, not replace human judgement 
--RBI Rao: AI to aid credit scoring, customer engagement, address cyber fraud 
--RBI Rao: Financial space has seen tremendous change in terms of tech

 

MUMBAI – The Reserve Bank of India has seen some concerns of excessive borrowing in unsecured segment and from derivatives euphoria in the capital markets, RBI's Deputy Governor Rajeshwar Rao said Friday at the the IIMK-NSE 2nd Annual Conference on Macroeconomics, Banking and Finance. He added that financial institutions need to ensure that excess finanancialisation through technology does not lead to over leveraging.

 

"While technology and digital innovations are driving financial inclusion and access, they also bring with them the risk of excessive exposure and over-leveraging, which can create significant vulnerabilities for both individuals and the broader financial system. However, as it is said that presence of too much light can also lead to blindness, we must be aware of the risk of reckless financialisation," Rao said.

 

He added that the temptation of short-term gains can easily overshadow the long-term financial security of individuals and that financial entities have a duty to ensure that customers fully understand the risks associated with leveraged products and speculative investing.

 

While talking about digitisation and financial inclusion, Rao said that artificial intelligence and machine learnings would drive the next phase of financial transformation. He added that artificial intelligence can be used in credit scoring, customer engagement, address cyber fraud.

 

"AI based techniques continuously learn and evolve, adapting to new fraud techniques and identifying subtle anomalies in transaction and payment behaviour. This is especially critical in the era of real-time payments and digital transactions, where cyber threats, frauds and use of mule accounts are becoming more sophisticated."

 

He said that with the rising digital transformation in the financial space, banks should be prepared to manage the risks associated with them and urged them to invest in technology. On the over-reliance on artifical intelligence, Rao said that while algorithms provide valuable insights and efficiency, they should be viewed as tools to support, not replace, human judgment. "Financial firms cannot afford to view regulation as a barrier to innovation—rather, compliance itself must become a core component of their digital strategy," Rao said.

 

He said that as a regulator, it is difficult to determine the optimal level for regulation and hence urged banks to build a robust governance system and also develop processes to comply with the changing regulations.  End

 

Reported by Kshipra Petkar

Edited by Deepshikha Bhardwaj

 

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