India's financial sector may need strategic upskilling and reskilling at a time digitalization is revolutionizing the sector, Reserve Bank of India (RBI) governor Shaktikanta Das said. In the central bank's Report on Currency and Finance for FY24, Das also highlighted various challenges and risks posed by this transformation.
“Digitalization presents challenges related to cybersecurity, data privacy, data bias, vendor and third-party risks, and customer protection. Increased inter-connectedness may lead to systemic risks. Additionally, emerging technologies can introduce complex products and business models with risks that users may not fully understand, including the proliferation of fraudulent apps and mis-selling through dark patterns. Digitalisation may induce human resource challenges in the financial sector, necessitating strategic investments in upskilling and reskilling,” Das said.
The governor said that balancing financial stability, customer protection and competition will remain key policy challenges for the regulator.
According to the RBI report, India already has the highest relative artificial intelligence (AI) skill penetration rate, and has seen a 16.8% jump in AI talent recruitment, indicating the growing shift towards digital-intensive roles.
In his foreword to the report, Das also said that regulatory and supervisory frameworks must scale up and become more sophisticated to navigate these digital complexities and future-proof the financial system. The goal is to balance effective regulation with fostering financial innovations in a safe, robust and trustworthy ecosystem, he said.
The governor said India is leading the global digital revolution, emerging as a frontrunner thanks to its robust digital public infrastructure, rapidly evolving institutional arrangements, and a growing tech-savvy population.
According to the RBI report, digitalization could pose financial stability concerns, owing to cybersecurity threats, data breaches and the speed at which information and rumours can flow through the system. The average cost of data breaches in India touched $2.18 million in 2023, marking a 28% increase since 2020, said the report. This is, however, less than the global average of $4.45 million in 2023, a 15% increase over three years. Globally, cybercrime costs are expected to reach $13.82 trillion by 2028, up from $8.15 trillion in 2023.
Phishing is the most common form of cyberattack in India, accounting for about 22% of incidents, followed by incidents involving stolen or compromised credentials at 16%, the RBI report said.
Das highlighted that digitalization is paving the way for next-generation banking, improving access to financial services at affordable costs, and enhancing the impact of direct benefit transfers by effective targeting of beneficiaries in a cost-efficient manner.
The report said that direct benefit transfers (DBTs) have streamlined subsidies and reduced leakages, with ₹6.9 trillion transferred directly under 315 schemes, reaching 176 crore beneficiaries during FY24. The DBTs have resulted in an estimated cost saving of ₹3.4 trillion over the years till March 2023.
Further, Das said that digitalization is revolutionizing retail credit, with fintechs partnering with banks and non-banking financial companies (NBFCs) as lending service providers, and operating platforms that facilitate digital credit. Additionally, Big Tech companies are supporting payment apps and lending products as third-party service providers.
“All these innovations are making financial markets more efficient and integrated,” Das said.
Das also noted that the RBI’s initiatives for internationalization of home-grown payment modes, cross-border fast payment network linkages and knowledge and experience sharing with peers is energizing the transformation of its digital public infrastructure as a global public good.
