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RBI going Hi-tech in regulation, risk management

May 31, 2024

The Reserve Bank of India is on a drive to raise the use of technology in key areas like supervision and risk management but flagged the downside risks and how widespread the challenges could be in the adoption of Artificial Intelligence and Machine Learning.

The central bank, which is on a digital mission, said that the Greenfield Data Centre will be in its advanced stages of completion by the end of this year.

The data centre will be a primary source for research, and capacity building and cater to the emerging requirements of the financial services sector.

"The need for a data centre comes from a few evolving risks, so it is important to have critical infrastructure like this data centre sovereignly controlled. This will make sure that we don't get into the stage where the data centre is inaccessible or even worse, the data is accessible to others," said Yashwant Lodha, cofounder of PayNearby.

The data centre will get compliance and other services like audit, security and accessibility built in for organisations to use, getting down the cost of compliance for fintechs and other organisations.

"As of today, this data centre can be accessed by the financial services sector only and not by individuals for independent research. Access to individuals is something that can evolve over time when the RBI adds more use cases," Lodha said.

As part of its digital mission, the RBI also encouraged the use of AI and ML in key areas like infrastructure, payments, risk management, audit and analytics.

"Application of AI can have a positive impact on the complete lifecycle of risk management, considering the ability of AI-based tools to analyse voluminous data and identify patterns," the RBI said in its annual report.

The central bank flagged risks due to over adoption of AI and ML, along with losses due to extreme weather events. Losses due to climate change events are not felt immediately.

"It may not be applicable to the financial industry directly, but it's a bit of a butterfly effect. The problem is that all these losses that are felt later are massive, there are economic losses for people, for organisations and overall to the country," Lodha said.

[The Economic Times]

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