RBI Will Use AI And Machine Learning To Learn More About How Banks Work, Says The Deputy Governor

A top RBI official said that the Reserve Bank of India (RBI) is in the process of putting advanced analytics, artificial intelligence, and machine learning to use on supervisory data while taking the appropriate precautions to learn more about how supervised entities work.

Deputy Governor MK Jain said at the 25th SEACEN-FSI Conference of the Directors of Supervision of Asia Pacific Economies in Mumbai, “These initiatives show the Reserve Bank’s commitment to using technology and data-driven approaches to strengthen its supervision.”

Jain said that the RBI has used a variety of analytical tools to improve the efficiency of its supervision frameworks. Jain said that some of these are an early warning system, stress testing models, vulnerability assessments, cyber key risk indicators, phishing and cyber reconnaissance drills, targeted evaluations of compliance with KYC and AML norms, and data analytics.

Jain says that bank supervisors need to look closely at the business models banks use and check carefully to see if these models match the bank’s willingness to take risks.

“This evaluation should look into how much the business is expected to grow, how long it will be able to keep making money, how much it is diversified, how much it is covered by insurance, how prices should be set, etc.,” Jain said. In recent years, the central bank has been telling banks, using the recent US banking crisis as an example, that they need to pay more attention to corporate governance and compliance to avoid another crisis.

Jain said that governance is the most important thing and that it is always at the heart of supervisory worries. The deputy governor also said that good company governance and good regulation go hand in hand and help each other.

“The recent failures of banks in advanced economies have shown how important it is to deal with governance issues head-on,” Jain said.

IT platforms need more attention

The deputy governor also said that managers need to look at IT problems as a whole. Jain said it is important to find out if banks have the ability to build strong IT systems that fit with their business plans.

“In order for banks to make sure their IT infrastructure is ready for the future, they need to make smart investments in both capital and operational costs. Effective IT governance is becoming more important as virtual work settings and cyber risks become more common, Jain said.

These words are important because banks have been having a lot of digital problems in recent years. The RBI has asked banks more than once to put more money into improving their IT systems.

Focus audit

The RBI official also said that leaders need to pay attention to how well assurance functions like risk management, compliance, and internal audit work. “The assurance functions are an important safety measure because they let the bank’s operations, risk management practises, and compliance with regulatory requirements be evaluated in an independent and objective way,” Jain said.

By judging the quality of the assurance functions, he said, managers can find possible weaknesses, judge how well internal controls work, and reduce risks before they get worse.