Shaktikanta Das Highlights Digitalization’s Role in Banking Evolution and Challenges in RBI’s 2023-24 Report

Reserve Bank Governor Shaktikanta Das stated on Monday that digitalization is transforming the finance sector, leading to the emergence of next-generation banking and improved accessibility to financial services at reasonable costs. In the preface of the 2023-24 Report on Currency and Finance (RCF), the Governor also emphasized that the Unified Payments Interface (UPI) has revolutionized retail payments, making transactions faster and more convenient for users. Additionally, the Reserve Bank is actively involved in piloting the e-rupee, a central bank digital currency (CBDC), in the digital currency space.

The digital lending landscape is also evolving with initiatives like Open Credit Enablement Network, Open Network for Digital Commerce, and the Public Tech Platform for Frictionless Credit.

Fintech companies are collaborating with banks and non-banking financial institutions (NBFCs) as lending service providers, and they are also establishing platforms to facilitate digital credit. Furthermore, major technology firms (BigTechs) are supporting payment apps and lending products as third-party service providers. Governor Das highlighted that digitalization is paving the way for next-generation banking, improving access to financial services, and enhancing the impact of direct benefit transfers.

He noted that digitalization is enabling retail segment loans through online payments and innovative credit assessment models, resulting in instant disbursements. Additionally, e-commerce is being boosted through embedded finance, making financial markets more efficient and integrated. However, Das also pointed out that digitalization presents challenges related to cybersecurity, data privacy, data bias, vendor and third-party risks, and customer protection. He cautioned that increased interconnectedness may lead to systemic risks and that emerging technologies can introduce complex products and business models with risks that users may not fully understand.

This includes the proliferation of fraudulent apps and mis-selling through dark patterns. Digitalization may also lead to human resource challenges in the financial sector, requiring strategic investments in upskilling and reskilling.

The report explores emerging opportunities and challenges, supported by surveys of key stakeholders and data analytics, and provides empirical support for the positive role of the regulatory framework in increasing consumer confidence in digital financial products, boosting the operational and technical efficiencies of financial institutions, and fostering more liquid and integrated financial markets.