 "75% banks, NBFCs have chatbots, e-assistants: RBI's Michael Patra")
While the Indian financial sector entities are adopting newer technologies, there is a need to be watchful in areas like cybersecurity and growing reliance on Software as a Service (SaaS) solutions, Reserve Bank of India’s Deputy Governor Michael Patra said.
He cited a recent survey conducted by the Reserve Bank of India (RBI) at the end of June 2023, which showed that almost three-fourths of Indian banks and non-banking financial companies (NBFCs) have implemented chatbots and virtual assistants.
The survey highlighted a substantial surge in the incorporation of AI-related keywords within the Indian banking sector, he said. However, he also underscored the significance of addressing concerns related to transparency, data biases, governance, privacy, and algorithmic robustness amid the escalating use of Artificial Intelligence (AI). Consequently, he stressed the need for central banks to implement adequate checks and balances to ensure responsible AI utilization.
“The RBI has emphasised that data used for training of models should be extensive, accurate and diverse to rule out any prejudices and that algorithms should be auditable,” said Patra while speaking at the SAARCFINANCE seminar on Emerging Digital Technologies in Central Banking and Finance, Goa on January 17, 2024. RBI has uploaded the speech on its website on Monday.
Patra said that ensuring robust cybersecurity measures in banking organizations is imperative to maintain public trust in the financial system. The risks associated with cyber threats extend to customers, posing a danger of exposing personally identifiable information (PII). Additionally, organizations face substantial financial burdens, including operational disruptions, ransom demands, and the necessity to reconstruct infrastructure from scratch.
Patra said that with the growing reliance on Software as a Service (SaaS) solutions, financial institutions are vulnerable to third-party or supply-chain attacks. While cloud computing is integral for modern applications, it introduces potential threats to data security, privacy, system availability, continuity of operations, interoperability, and compliance with legal requirements, he said.
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“Due to increasing reliance on Software as a Service (SaaS) solutions, financial institutions can also get affected by third-party or supply-chain attacks. Cloud computing is becoming vital for many modern applications, but it is also associated with threats to data security and privacy, system availability, continuity of operations, interoperability, auditability and compliance with legal requirements,” said Patra.
Digital financial exclusion emerges as a challenge, where a significant portion of the population may feel marginalized. Furthermore, the proliferation of emerging technologies introduces complex products and business models, exposing users to risks they may not fully comprehend. Issues such as fraudulent apps, deep fakes, and mis-selling through dark patterns contribute to these evolving risks.
The challenge also revolves around the potential fragmentation of the financial world due to digital innovation, creating disparities between user groups and countries. To establish effective cross-border digital financial infrastructures, there is a pressing need to foster discussions and promote common protocols, standardized APIs, and secure communication channels. Legacy infrastructures within the financial system must undergo upgrades aligned with these common protocols to accommodate new forms of demand.
“It is imperative to strike a balance between benefits and risks by strengthening the capacity of regulated entities (REs) and surveillance by oversight authorities, formulating/updating relevant legal and regulatory frameworks, proactively engaging stakeholders to identify possible risks, and expanding consumer education,” he said.