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RBI adopting AI, and machine learning to gain deeper insights into bank operations
June 16, 2023
The Reserve Bank of India (RBI) is in the process of adopting advanced analytics, artificial intelligence and machine learning into supervisory data, while taking necessary safeguards, to gain even deeper insights into the operations of supervised entities, a top RBI official said.
“These initiatives reflect the Reserve Bank’s commitment towards harnessing the power of technology and data-driven approaches to strengthen its supervision,” said Deputy Governor MK Jain, while speaking at the 25th SEACEN-FSI Conference of the Directors of Supervision of Asia Pacific Economies in Mumbai.
To enhance the effectiveness of supervisory frameworks, the RBI has employed various analytical tools, Jain said. These include an early warning system, stress testing models, vulnerability assessments, cyber key risk indicators, phishing and cyber reconnaissance exercises, targeted evaluations of compliance with KYC/AML norms and Data Analytics, among others, Jain said.
According to Jain, supervisors must closely examine the business models adopted by banks and meticulously assess whether these models align with the institution’s risk appetite.
“This evaluation should delve into the level of business growth projections, sustainability of earnings potential, extent of diversification, provisioning cover, and appropriate pricing mechanisms, etc,” Jain said. In the recent past, the central bank has been warning banks to increase focus on corporate governance and compliance to avoid a crisis situation in the future, citing the recent US banking crisis.
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