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Informist, Friday, Nov. 7, 2025

 

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--RBI Sankar: Need international agreement for cross-border CBDC payment 
--RBI Sankar:CBDC to aid cut settlement cost for bks in cross-border payment 
--RBI Sankar: Have to start expanding digital public infra to lending 
--RBI Sankar: Banks need to treat fintechs as partners in innovation 
--RBI Sankar: Banks must modernise infra, move from monolithic
--RBI Sankar: Important to re-engineer culture of innovation in banks 
--RBI Sankar: Bk strength may not depend on balance sheet as much as on tech 
--RBI Sankar: Technology tends to dilute banks' inherent strengths 
--RBI Sankar: Need to understand risks from technological shifts 
--RBI Sankar: E-rupee superior to bank payment in cross-border payments 
--RBI Sankar: Now possible that bks not required for substantiating payments 
--RBI Sankar: Risks from private digital currency existential for banks 
--RBI Sankar: Banking business to change significantly due to e-rupee 
--CONTEXT: RBI Deputy Governor Sankar speaking at SBI Conclave in Mumbai 
--RBI Sankar: Banks did not see potential of UPI like fintechs did

 

NEW DELHI/MUMBAI – The lack of regulatory burden on financial technology companies and their improved digital innovation have exposed the Achilles' heel of the Indian banking system, Reserve Bank of India Deputy Governor T. Rabi Sankar said Friday. Sankar further advised banks to partner with fintech companies in innovation and make digital improvements in leaps to stay relevant in the digital world.

"...there is a general realisation that the new fintech players, mainly because they had no legacy systems that tied them down, were far more nimble and innovative than the incumbent banks," he said at the 12th SBI Banking and Economic Conclave in Mumbai. "While this did not undermine the role of banks as such, it exposed Achilles' heel of the banking system, that banks could be vulnerable to strong inertia in adapting to new technology."

 

Sankar pointed out that fintech companies currently challenge the inherent strengths and existential needs of banks. "Modernising core infrastructure to make it less monolithic and rigid is clearly one imperative if banks have to compete with the fintech ecosystem," Sankar said. "...banks have inherent strengths – credibility, balance sheet strength, and customer base. Technology asymmetry tends to dilute these benefits."

 

To that extent, Sankar said banks' competitiveness may no longer depend as much on balance sheet strength as on data capability and technology flexibility. Over the last few years, Indian banks – including public sector banks – have spent a significant part of their balance sheet on technological innovation, including on digital products. "Perhaps the most important requirement is re-engineering the culture of innovation within banks and creating incentives for learning and skill upgradation from within."

 

According to the deputy governor, a significant part of banks' operation was to supply currency to public, however, the advent of central bank digital currency contests that basic role. "The risks from private digital currencies to banks appear existential yet not very well understood or debated globally," Sankar said.

 

With central bank digital currencies, the banking business is likely to change significantly, and its impacts need to be understood by banks, Sankar said. Additionally, banks are the core intermediaries in financial markets, and with digital currency which uses blockchain technology, this could very well change. "The basic function of a blockchain is to authenticate transactions, financial or otherwise, in the absence of a trusted intermediary. It is now possible that banks may not be required to authenticate payments, substantially impacting their role as intermediaries," he said.  

 

Apart from these fundamental changes, new technology poses various other risks to the roles that banks traditionally play. For instance, the deputy governor said, digital currencies could provide a superior alternative to banks in cross-border payments. "Quantum computing, though nascent, could one day revolutionise encryption, risk modelling, portfolio optimisation," he argued.

 

Sankar, who has been the key official behind India's digital currency, said that digital currency can play a bigger and better role in cross-border transactions. It will help in significantly cutting cost – currently paid to banks – for settling the transactions. However, to revolutionise cross-border digital currency payments, international agreements are needed to promote it collectively, the central banker said. 

 

For RBI, the focus is on transporting the benefits of e-rupee seen in the domestic leg to the cross-border space. The second aspect is in terms of tokenisation, with a lot of new technologies facilitating tokenised money and assets, he said. "I think we are focusing on CBDC's tokenised money, we are also looking at tokenised financial assets. So that is the second area where payments will focus on."

 

In terms of digital public infrastructure, Sankar said, Indian banks did not reap the benefits of Unified Payments Interface as much as fintechs. Following the success of UPI, going forward, the central bank will work towards popularising digital public infrastructure in the lending phase, he added. The RBI has launched Unified Lending Interface as part of this, which offers end-to-end digital credit by using data on prospective borrowers from various sources, including land records.

 

However, Sankar also pointed out that at this stage, technological risks for banks are more conceptual than actual. "Yet, at the very least, they can eat into the exclusive domain of banks going forward. Banks, therefore, need to be prepared well to meet these challenges and maintain their central role in monetary transmission and financial stability," he said.  End

 

Reported by Priyasmita Dutta, Sagar Sen, Anshul Choudhury, and Ashutosh Pati

Edited by Tanima Banerjee

 

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