 "RBI, Reserve Bank of India")
“Cyber fraudsters are increasingly targeting financial institutions instead of end-users globally,” the report said. (Photo: Reuters)
The Reserve Bank of India report on Currency and Finance – 2023-24 has cautioned about risks related to cyber security and fraud due to an increase in digitalisation along with risks to financial stability, while acknowledging benefits like innovation, expanding access, enhancing competition, and reducing intermediation costs, among others.
“Amidst several benefits, … digitalisation also brings new challenges in terms of complex financial products, greater interconnectedness, cybersecurity risks, financial frauds, and customer protection, with implications for macrofinancial stability,” the report said.
“These issues need to be addressed to realise the full potential of financial digitalisation.”
The report said digitalisation can also bring new risks and challenges for customer protection and financial stability.
“By integrating digital payment systems and FinTech innovations into its regulatory framework, the Reserve Bank has maintained financial stability while fostering economic growth,” it said.
According to a survey conducted in March 2024 covering 25 scheduled commercial banks (SCBs) and 68 non-banking financial companies (NBFCs), respondents said digitalisation could pose financial stability concerns owing to cybersecurity threats, data breaches, and the speed at which information and rumours can flow through the system.
“Cyber fraudsters are increasingly targeting financial institutions instead of end-users globally,” the report said.
Cyber risks and frauds, third-party risks, and data privacy issues were indicated as the most significant risk factors by banks and NBFCs at the current juncture as well as going ahead.
The report pointed out that the regulatory approach has been to strike a balance between mitigating the potential risks without impeding financial innovations.
According to the survey, banks and NBFCs in India are increasingly leveraging the digital revolution to reduce costs related to customer acquisition, transactions, and employees, while favouring collaboration with FinTechs to maximise gains.
The respondent banks and NBFCs identified cybersecurity, data privacy, and third-party risks as key challenges and indicated that they are largely equipped to deal with such risks. The surveyed REs favoured regulation of FinTech firms for harnessing the benefits of digitalisation and securing financial stability in India, the report said.
First Published: Jul 29 2024 | 9:02 PM IST
