Mahesh Kumar Jain, the Deputy Governor of the Reserve Bank of India (RBI), has urged the country’s banking sector to embrace the transformative potential of artificial intelligence (AI) and blockchain technologies.
This advice, underpinning the vital role of innovation in fostering sustainable growth and stability, came during a recent conference organized by the RBI for the directors of Indian banks.
Technological disruptions: Risk and reward
Mr. Jain expounded on the crucial nature of robust corporate governance structures and processes, particularly in navigating the increasingly complex landscape of future risks.
He pinpointed technological disruptions, evolving customer demands, and burgeoning cybersecurity threats as sources of new and complex challenges for India’s banks.
To combat these uncertainties, the Deputy Governor advocated for a strategic focus on technology adoption. In his vision for the future, he encouraged banks in India to “adopt innovative technologies such as AI and blockchain.”
Coupled with a concentrated effort on digital transformation and customer experience enhancement, and substantial investment in cybersecurity measures, he asserted that these strategies could serve as the bedrock of the banking sector’s response to emerging risks.
Rising to the challenge of digital transformation
Jain’s comments arrive amidst the backdrop of India’s foray into digital currencies. On November 1, the country launched a central bank digital currency (CBDC), testing its offline functionality as early as March.
The RBI’s executive director, Ajay Kumar Choudhary, also shared India’s intention to utilize its CBDC as a common medium of exchange.
This announcement reveals India’s growing interest in exploring the applications of AI and blockchain technologies in the banking sector. Concurrently, neighboring Pakistan has unveiled an ambitious plan to educate one million IT graduates in AI by 2027.
This regional push towards AI proficiency further underscores the significance of AI and blockchain in the ongoing digital revolution.
Jain’s recommendations for AI and blockchain adoption coincide with a period of uncertainty concerning cryptocurrencies in India. The country’s legislative body, the Lok Sabha, introduced the Cryptocurrency and Regulation of Official Digital Currency Bill in 2021, aimed at preparing the groundwork for a digital currency issued by the RBI. However, this bill failed to pass into law.
Amid the lack of a central authority regulating cryptocurrencies as a payment medium in India, concerns about standardization and dispute resolution have emerged.
In a bid to address some of these issues, the Indian Finance Minister proposed a tax on digital assets, sparking debates about the legal status of cryptocurrencies in the country. A subsequent 30% tax on cryptocurrency gains was announced in the Union Budget 2022.
As India grapples with these challenges, the proposed taxation of virtual currencies has been seen by some as an initial step towards their legal recognition. Yet, the government is still to provide an official statement regarding the legality of cryptocurrencies such as Bitcoin in India.
Jain’s call for the banks to invest in AI and blockchain technologies offers a vision of a future where these innovations drive sustainable growth and stability.
As the country navigates its path in the cryptocurrency domain, it’s clear that AI and blockchain will play an increasingly central role in shaping the future of India’s banking landscape.
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