SDG 9: Industry, Innovation, and Infrastructure | SDG 17: Partnerships for the Goals
Institutions: Reserve Bank of India (RBI) | Ministry of Finance
The keynote address by Shri T. Rabi Sankar, Deputy Governor of the RBI, positioned technology as the foundational basis of the future financial system, moving beyond mere efficiency. The speech serves as a high-level policy assessment of the existential challenges facing India’s banking sector as a result of digital transformation, highlighting the crucial strategic choices required at the intersection of public policy, market regulation, and technological change.
I. The DPI Model: Technology as Statecraft
Technology has become the very foundation upon which the future of financial intermediation rests.
India’s success is attributed to its unique model of leveraging Digital Public Infrastructures (DPIs) like Aadhaar and UPI.
This model ensures the public sector provides a foundational layer of infrastructure, accessible by all and priced like public goods (minimal charges or free).
The DPIs are intended to create a platform for the private sector (fintechs) to focus on innovation and scale, fostering a public-private cooperation character.
II. Regulatory Dilemma and Institutional Inertia
The DPI model exposed the Achilles heel of the banking system: strong inertia in adapting to new technology.
Banks are constrained by monolithic IT systems (core banking systems) that are difficult to modernize and upgrade.
Fintechs hold inherent advantages: a technology edge (no legacy systems), broader data access, and a significant cost advantage (asset-light balance sheets and lower due diligence requirements).
The corollary of the bank’s protected, regulated environment is that their innovation edge is blunted, leading them to underestimate the potential of platforms like UPI compared to fintechs.
III. Existential Risks and Future of Money
Emerging transformational technologies like digital currencies, blockchain, and quantum computing pose challenges that are fundamental to banks.
Digital currencies (private or CBDCs) are providing an alternative to bank money, which is the lifeblood of modern economies.
Blockchain technology fundamentally challenges the bank’s role as the intermediary required to authenticate the payment leg of every financial transaction, as its basic function is to authenticate transactions without a trusted intermediary.
These shifts signal a move from a system of intermediated finance to one of intelligent interconnections.
IV. Strategic Imperatives for Governance
Banks must recognize that incremental digitisation is unlikely to be enough to maintain competitiveness.
The strategic imperatives include modernising core infrastructure to be less monolithic, adopting a platform orientation, and using API-based collaboration with fintechs.
The most important requirement is reengineering the culture of innovation within banks, cultivating deep digital and data skills at all levels.
Banks need to treat fintechs as partners in innovation to create symbiotic strategic partnerships, benefiting from their agility without compromising prudential discipline.
The address acts as a regulatory call-to-action, asserting that the direction of technology is intentional and must be shaped strategically by banks through robust governance and human capital development. This policy stance aims to ensure the benefits of innovation are absorbed while safeguarding prudential discipline against the new systemic risks posed by disintermediation.
Relevant Question for Policy Stakeholders: How must the Indian regulatory framework evolve to actively foster the ‘re-engineering of innovation culture’ within large, public-sector banks, given the existential threat of technological disintermediation?
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