Raghuram Rajan for more use of IT by banks

“The setup of an IT subsidiary will help up on issues such as the cyber security and evaluate the technical capabilities of banks”, Rajan said. “We can see the effect of the IT revolution everywhere in the banking system, except on the expenses side… why aren’t the expenses coming down?”

“The use of smart-phones in rural areas is significant but perhaps most interesting is that the share of time spent on mobile banking is relatively small, and that needs to increase substantially”.

Though banking costs have reduced with the use of technology, the reduction in the costs was not on the expected lines. Two factor authentication and aadhar were helping in authentication. “Despite use of all IT, the cost structure is still significantly high”. The second factor is the human factor – wherein the way business is organized has to change. “Also, there is tremendous information available, ranging from social media habits to the kind of products customers use and so on, which can be used to not just better serve the customer but also for efficient banking”, he said. Rajan pointed out banks are capturing lot of customer data and now the challenge is, how do banks use the vast data to better serve customers and mitigate risks while forwarding loans?

“There were a few hiccups in creating the large loan data bank but now we have relevant information”. So increasingly, the flavour of the moment is housing loans. “One of the biggest concerns among the central banking community is whether we understand enough about the possible threats and whether the banking system, financial system, is fully protected against what is going to happen”, he said.

Reserve Bank governor Raghuram Rajan has cautioned banks against lending to high credit risk people in their efforts to push home loans. The entire banks are not fully integrated in terms of IT usage such that on a daily basis it can spin out what the details of the loans are, what the performance is. Meanwhile, lauding the Jan Dhan Yojna in the area of increasing financial inclusion, he also batted for Aadhaar usage.

Rajan said the RBI would shortly set an information technology subsidiary, which would work to deepen the use of IT in the banking. Rajan said that cyber security has attracted the attention of banking regulators and could soon be a “major part” of their routine examinations of banks.

He also hoped that the Supreme Court will take a positive view on the wider usage of Aadhaar card.