The pandemic has significantly increased global demand for online banking services, leading regulators to intensify their scrutiny of banks' digital infrastructure.
According to an S&P Global Ratings report, banks are expected to boost their technology spending by 15–20% annually over the next two to three years.
The report also pointed out that in countries such as Malaysia and Singapore, technology costs have already risen by an average of 13% and 20%, respectively, over 2022 and 2023.
It highlighted that the surge in digital transactions has prompted regulators to implement stricter measures aimed at improving banks' technology infrastructure and reducing customer downtime.
Banks that failed to follow the same could face stricter actions, potentially leading to significant impacts on their operations.
"Although costly, such investments are necessary," the report stated.
RBI Action Against Banks
This heightened regulatory focus follows recent actions by the Reserve Bank of India against banks due to multiple outages.
In April, the RBI restricted Kotak Mahindra Bank Ltd. from onboarding new customers through online and mobile banking channels and from issuing new credit cards following several core banking system outages.
This restriction is expected to affect the bank's growth and margins, as credit cards are a high-yield segment for the bank. The bank estimates a 2.5% impact on its profit before tax, including additional technology spending required to address the regulator's concerns.
Previously, in 2020, the RBI had temporarily banned HDFC Bank Ltd. from issuing credit cards due to issues with its core banking systems. These restrictions were lifted once the bank met the banking regulator's requirements.
In response to similar concerns, Malaysian regulators have recently fined banks to promote more resilient digital infrastructure for banking services.
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