Deputy Governor of the Reserve Bank of India (RBI) Swaminathan J, on Wednesday, warned of systemic risks from digital disruption, urging vigilance on cyber security, digital payments, third-party reliance, and the rapid rise of fintechs.

Addressing an international conference hosted by DICGC at Jaipur, Swaminathan said, “Today, a significant portion of banking transactions and services are conducted through digital channels. The expansion and widespread adoption of digital payment systems has enabled rapid, low-cost transactions and easy withdrawals via online banking and mobile apps.”

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However, this shift increases the risk to operational stability and resilience, necessitating ongoing investments in IT systems and technology to manage peak loads effectively.

Additionally, the 24/7 availability of online and mobile banking can heighten vulnerabilities, potentially accelerating bank runs and liquidity crises during periods of stress, as customers may withdraw funds even outside of traditional banking hours and without having to visit a Bank branch, he maintained.

Further, this behaviour is amplified with the emergence of digital sources of influence, such as social media platforms, that have proved their ability to drive, disseminate financial information, adverse or otherwise, and trigger a coordinated financial behaviour, the DG said.

“Technology-induced systemic risk may indeed be one of the only truly global risks, that threaten the entire financial system across the world, as digital and online technology blur the boundaries between nations, industries and make the world into one entity,” he said.

“The recent microsoft outage is one such example of how the world so interconnected suffered disruptions in services across the globe.”

The RBI Deputy Governor outlined four key facets that demand immediate attention: cybersecurity, digital payments, third-party dependencies, and the rise of fintech.

Swaminathan highlighted that the financial sector has become a prime target for cyberattacks, given the vast amounts of sensitive data and capital it handles.

“Protecting critical infrastructure from breaches is of paramount importance,” he stressed, calling for not just advanced technical defenses but also a robust culture of cybersecurity awareness across all levels of financial institutions.

The expansion of digital payment systems has revolutionised banking, enabling rapid and low-cost transactions. However, this convenience comes with its own set of challenges.

“The shift to digital channels increases the risk to operational stability and resilience,” the DG noted.

The Deputy Governor also highlighted the risks associated with the growing dependence on third-party entities in the provision of financial services.

“The digital transformation in banking has created a complex web of technical and operational dependencies,” he observed. The failure of any link in this chain could have catastrophic consequences, as evidenced by recent global IT outages.

“Financial institutions must exercise effective oversight of third parties and safeguard against potential vulnerabilities,” he urged.