BFSI Summit: RBI to go high-tech to boost oversight, says Dy Governor Jain

The Reserve Bank of India (RBI) is overhauling the way it supervises entities and has introduced, or is in the process of launching, automated systems that give granular access to firms that it regulates. 

The central bank is also much more engaged now with firms’ managements, revealed RBI Deputy Governor M K Jain in his keynote address at the Business Standard BFSI Insight Summit. The RBI will soon launch a web-based, end-to-end workflow automation system that will have functionalities for inspection, compliance and incident reporting for cyber security, etc., with a built-in remediation workflow, management information system (MIS) reports, Jain said.

Strengthening supervisory capacity is critical for the RBI as it takes on more companies that are heavily reliant on technology, or are from lines of functioning that are different from what it is used to regulate earlier.

Apart from fintech firms in banking, the central bank has experimented with small finance and payments banks. It has also taken over the regulation of cooperative banks and housing finance companies, though it may not have enough boots on the ground. 

The RBI has increased its scrutiny manifold, particularly since the PMC Bank crisis.

“In this ever-evolving and challenging environment, ultimately it is the operations of a financial entity in terms of its governance standards, business model, risk culture, and assurance functions that will decide how well it fares in the long run,” Jain said, adding, the “Reserve Bank would expect all its supervised entities to give due weightage and consideration to these elements.”

Jain said the RBI is increasingly using data and analytical tools for offsite supervision. In addition to Central Repository of Information on Large Credits (CRILC) and Central Fraud Registry (CFR), the central bank is also upgrading its capabilities through the revamped data warehouse, the Centralized Information Management System (CIMS), which will “encompass tools and applications for AI-ML (artificial intelligence and machine learning), data visualisation and big data analytics.”

For on-site supervision, the RBI identifies focus areas in advance and completes the inspections in a time-bound manner. The central bank’s supervisory communication is also sharper and more focussed. “Additionally, direct engagements with the senior management of entities are much more frequent and intense,” Jain said.

The deputy governor warned banks to prepare for the competition from agile fintech firms that have drastically reduced the cost of banking while improving the reach and penetration. 

“Agile and creative thinking is going to be essential in staying ahead of the digital curve when it comes to the evolution of financial services,” Jain said.

Financial institutions must experiment with new technologies and “tailor their products and services in alignment with business strategy and competitive considerations as well as in compliance with existing laws and regulations,” he said.

Leveraging technology will also require more investments, building expertise and capacities.

In the end, the RBI’s regulatory and supervisory approach is ownership neutral “with focus on ensuring financial stability and resilience of its financial entities," Jain said.