As the financial system increasingly deploys AI across operations, RBI Deputy Governor Jain said AI governance must come before scaling.
“AI is expected to fundamentally change financial services — but governance must precede scale,” said Jain while speaking at SBI Banking & Economics Conclave on Thursday. He made the remark while underscoring technology’s central role in shaping banking’s very architecture.
He also noted that technology investment should be treated also as a risk investment, adding that it is an investment in continuity, confidence and financial stability. The deputy governor urged that scale in digital payments and financial services must not come at the expense of trust and resilience.
“But if a critical technology system is unavailable, if a cyber incident compromises operations or if a key technology dependency fails, the customer may be unable to access an essential financial service. This means that financial resilience and technological resilience can no longer be viewed in isolation.”
He noted that financial institutions must recognise that data breaches can create risks of identity theft, fraud, and loss of public trust. Therefore, vulnerability management, timely patching, data protection, and incident response are essential components of financial resilience, he added.
Jain stressed that technology risk is no longer a concern of just IT department as it is embedded across core banking functions, from on-boarding to fraud detection.
It requires thinking about cyber security in broader terms. “The response must therefore evolve from identifying only suspicious transactions to identifying suspicious patterns. This requires a combination of real-time transaction monitoring, behavioral analytics, device and identity intelligence, domain and network analysis, and information sharing across relevant stakeholders.”
AI can both be an instrument of attack and a powerful tool of defense, Jain said.
Therefore, he called for AI-powered cybersecurity in a coordinated and responsible manner.
The RBI deputy governor expects liquidity from FCNR (B) deposits to be deployed over the coming months, he told reporters on the sidelines of the conclave on Thursday.
“We are entering the festive season and there is a lot of credit demand. Therefore, I think the banks will be able to deploy this liquidity over the next few months.” He said that they had a meeting with all the banks and discussed their position.
Jain added that each bank will decide credit deployment based on its pipeline, pending proposals, and liquidity outlook. “Their asset liability position will determine how they deploy that liquidity; it’s basically the bank’s call…”
In a fireside chat, he said the huge forex reserves, driven by these foreign deposits, would be managed responsibly, with safety taking precedence. “There are various oversight frameworks, strong governance arrangements, and the best possible risk management tools that we use to manage this huge amount of forex reserves that we hold on behalf of the citizens of this country. We have expert internal and external asset managers.”
He laid out three principal considerations in managing reserves. “Safety, liquidity, and return. All three are important, but the order is also important. Because these are borrowed funds, these forex reserves have to be handled very carefully. Return should not be the only consideration when deploying these reserves,” he added. India’s forex reserves stood at $780.78 billion as of September 11, the RBI data showed.