Mumbai (Maharashtra) [India], Jan. 12 — The Reserve Bank of India (RBI) has warned that the rapid digitalisation of banking is fundamentally transforming financial risks, prompting both supervisors and banks to rethink approaches to stability, governance, and customer protection.
Speaking at the Third Annual Global Conference of the College of Supervisors in Mumbai, RBI Deputy Governor Swaminathan J noted that traditional indicators like capital adequacy and liquidity are no longer sufficient to assess bank health in a technology-driven environment. “Many jurisdictions are navigating similar challenges: rapid digitalisation, first-time customers, platform-based delivery, and fast-changing threat landscapes. Sharing practical experience on what works and what does not is one of the quickest ways to raise supervisory effectiveness,” he said.
He highlighted that risks in the digital era evolve at unprecedented speed, with exponential growth, misinformation, and liquidity stress potentially materialising within hours. “Customer acquisition can be exponential, but so can misinformation, panic, and outflows. Risks that used to take weeks to build can now crystallise in hours. This means supervisory feedback loops must tighten, with early triggers, faster follow-up, and clear escalation,” Swaminathan added.
The RBI DG also cautioned about common exposures arising from reliance on shared service providers, cloud platforms, payment rails, data vendors, and cybersecurity tools. “It is not always visible in traditional financial ratios, but it is very real. For supervision, we need to map dependencies more actively and assess concentration risk at the ecosystem level, not only at the individual institution level,” he said.
With AI and machine learning increasingly used in credit underwriting, fraud detection, customer service, treasury, and internal control functions, the Deputy Governor stressed the need for accountability, explainability, and fairness. “Supervisors need to be able to ask, and entities need to be able to answer, a simple question: who owns the outcome when a model drives a decision?” he remarked.
He further noted that digital banking expands points of entry for threats, often posed by well-funded, persistent adversaries. Weaknesses at a vendor, partner, or common technology component can create spillovers, making resilience and recovery core capabilities.
While digital lending, embedded finance, and platform-based distribution have improved access and convenience, risks such as mis-selling, opaque charges, aggressive recovery practices, and data misuse persist. Swaminathan emphasised that in a digital environment, customer harm can quickly escalate into a confidence and liquidity issue.
“Supervision in the digital age must become more vigilant, ecosystem-aware and outcome-focused. The objective is not to slow innovation, but to ensure it is built on trust, resilience and fairness,” he concluded.
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