RBI Wants Large PSU, Private Banks To Invest More On IT As Volumes Rise — BQ Exclusive

The Reserve Bank of India as part of its supervisory inspections has asked some large banks to invest more in information technology to be prepared for sharp growth in their businesses and risks emanating from cyber attacks, according to two persons with knowledge of the matter, who spoke on condition of anonymity.

These banks include the State Bank of India, ICICI Bank Ltd., Axis Bank Ltd., Kotak Mahindra Bank Ltd., Union Bank of India, and Punjab National Bank.

The banks did not respond to an emailed query from BQ Prime seeking comments on this story.

The RBI has noticed banks under-invest in information technology despite increased volumes and risk arising out of growth in the use of online and digital banking, the first of the two persons quoted above said.

The review by banks from the perspective of investment in information technology was done after the outages experienced by HDFC Bank, which led to the RBI imposing business restrictions on it between December 2020 and March 2022. The restrictions were lifted only after the RBI weighed the findings of a third-party audit of the bank’s systems.

Noting the sharp investments by HDFC Bank at an expedited level during this phase, the RBI now wants other banks to also look at areas such as disaster recovery systems, early warning systems and the prevention of cyber attacks.

The major concern for the RBI is that many banks are exposed on the technology front, which is reflected in frequent outages, cyber attacks and data thefts. This is because banks are investing in technology largely to maintain the systems but not spending enough to upgrade and especially prepare for future readiness, the second person quoted above said.

In just the last month, the State Bank of India faced a major outage of its cyber systems that led to serious inconvenience for customers. The bank later said that the outage occurred due to a ‘technical glitch’.

On Thursday, BQ Prime exclusively reported that officials of the RBI had visited Fullerton India Credit Co.'s offices after there was an alleged data breach that had led to the leak of sensitive information about customers and the company.

Bank of Baroda was the outlier among banks, with the RBI finding that the bank had been ahead of the curve in making investments in information technology and digital systems.

According to a report released by Boston Consulting Group in November, banks in India will need to spend at least $5 billion a year, hire talent and make complex organisational changes to keep pace with the evolving digital ecosystem.

BCG said that investments in technology will need to be much "bolder" than in the past, with an aim to position Indian banks as tech product companies, as transaction loads are expected to rise 6 times in five years and branch density will be 1.5 times that of China. BCG also recommended that banks get tax incentives from the government for investing in technology and innovation.