While society harnesses the benefits of emerging technologies in the financial sector, regulators should pay careful attention to the underlying risks, said RBI Deputy Governor MD Patra.

Hence, central banks should focus on responsible use, data security and privacy, legal compliance, and ethical questions when it comes to these technologies.

New age technologies such as application programming interfaces (APIs), artificial intelligence (AI) and machine learning (ML), biometric-based identification and authentication (biometrics), cloud computing (CC) and distributed ledger technology (DLT) are currently powering innovations in the financial sector worldwide.

Patra underscored that with the increasing use of AI, concerns arise about transparency, data biases, governance, privacy and the robustness of algorithms.

Hence, central banks need to ensure that there are enough checks and balances in place.

“The RBI has emphasised that data used for training of models should be extensive, accurate and diverse to rule out any prejudices and that algorithms should be auditable,” the Deputy Governor said at a recent SAARCFINANCE seminar on “Emerging Digital Technologies in Central Banking and Finance” in Goa.

He noted that increased collaboration of banks and NBFCs with FinTechs has facilitated introduction of model-based lending.


Patra observed that cybersecurity in banking organizations is essential for continuing public trust in the financial system.

Cyber risks also entail customers facing threats of exposing personally identifiable information (PII).

“Organizations too have to bear high costs on account of the operational impact on businesses, demand for payment of ransoms and/or having to develop new infrastructure from scratch,” he said.

Due to increasing reliance on Software as a Service (SaaS) solutions, financial institutions can also get affected by third-party or supply-chain attacks, cautioned Patra.

The Deputy Governor said while cloud computing is becoming vital for many modern applications, it is also associated with threats to data security and privacy, system availability, continuity of operations, interoperability, auditability and compliance with legal requirements.

He flagged the issue of digital financial exclusion whereby a significant proportion of the population may feel left behind.

Lack of awareness

Additionally, emerging technologies have unleashed complex products and business models with risks, of which users may not be fully aware.

“New risks include the proliferation of fraudulent apps, deep fakes, and mis-selling through dark patterns,” Patra said.

He opined that digital innovation can also drive fragmentation of the financial world, as differing systems can divide user groups and countries from each other.

For effective cross-border digital financial infrastructures, there emerges a need to discuss and promote common protocols, standardised APIs and secure communications channels.

“Legacy infrastructures in the financial system need to be upgraded in line with these common protocols to handle new kinds of demand,” Patra said.

Quantum Computing

He told central bankers to closely monitor developments in Quantum Computing, which is expected to lead to a multi-fold increase in computational abilities.

There is growing concern, however, about the vulnerability of existing cryptographic methods that secure our financial transactions as Quantum Computing can rapidly perform code-breaking calculations.

“It is imperative to strike a balance between benefits and risks by strengthening the capacity of regulated entities (REs) and surveillance by oversight authorities, formulating/updating relevant legal and regulatory frameworks, proactively engaging stakeholders to identify possible risks, and expanding consumer education.

“These aspects will also require central banks to reskill and upskill the existing workforces and adapt to the changing digital landscape in a sustainable way,” he said.