Addressing the Annual Management Convention of Thrissur Management Association, Mr M. Rajeshwar Rao – Deputy Governor (DG), RBI – brought out the unique challenges that the COVID-19 pandemic and subsequent geo-political turmoil in Europe posed to the financial sector in India. He highlighted the interventions made by the Indian government and RBI to provide liquidity support and ease inflationary pressures on the economy, while also emphasising the role technology played in ensuring that these interventions reached their intended audience.

He also highlighted several challenges that need to be addressed in the near future. These include significant disparity in the availability and utilisation of financial services between urban and rural areas in India, developing financial products tailored to different income groups, providing credit financing for MSMEs, and managing the transition to a low-carbon economy while ensuring sustainable and inclusive development. He concluded by reiterating that banks need to continually innovate and adapt to changing times to meet the evolving needs of the Indian economy.

The directive mandates the provisioning of a Board-approved IT outsourcing policy that clearly defines the roles and responsibilities between IT and Business functions, under the Board’s oversight. It also provides guidance on outsourcing cloud computing services, highlighting the need for a shared responsibility model for cloud security between REs and cloud service providers. This clarity provided by the directive is expected to accelerate technology adoption, especially in cloud computing, within the Indian banking ecosystem. REs have until October 1, 2023 to comply with the provisions of the master directive.

Over the past decade, Green Finance has been gaining ground in the Indian financial ecosystem, with recent policy measures such as the Framework for Sovereign Green Bonds paving the way for funding environmental projects. As climate change poses a critical challenge to global society, the RBI has released a new Framework for the Acceptance of Green Deposits to enable customers to invest in environmentally-friendly projects and foster a Green Finance Ecosystem (GFS) in India.

In the aforementioned framework, the RBI has defined key terms such as Green Finance – lending to and/or investing in the activities/projects that contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives including biodiversity management and nature-based solutions and Greenwashing – the practice of marketing products/services as green, when in fact they do not meet requirements to be defined as green activities/projects.

The clarity in definitions helps channel the deposit proceeds to appropriate projects while also specifying excluded projects. The RBI’s framework can facilitate the funding of green projects, prevent greenwashing, and protect the depositors’ interests. It is anticipated to enhance India’s goal of becoming a carbon-neutral economy by 2070 while also providing leadership in addressing climate change. Such frameworks will set an example for replication by other countries struggling with different approaches to climate adaptation.

The Bank of England and the Bank for International Settlements (BIS) have successfully completed Project Meridian, their first joint project under the BIS Innovation Hub London Centre.

Project Meridian provides working proof for the concept of synchronisation, in which transactions settle using central bank money in a real-time gross settlement (RTGS) system. Funds are transferred from a buyer to a seller only if a corresponding asset on another ledger moves at the same time in the opposite direction. This is achieved via a new entity, the ‘synchronisation operator’, which uses Distributed Ledger Technology (DLT) to interlink the central bank’s settlement (RTGS) system with other financial market infrastructures and ledgers, automatically bringing about the exchange in ownership of funds and assets in a resilient and secure way.

Over the last decade, the Indian retail payments system has made significant progress in expanding its reach to remote areas, enabling digital payments where traditional payment methods were not available. This transformation has been possible due to the widespread adoption of mobile connectivity and smartphones. However, in areas with poor network coverage or where mobile phones are not accessible, cash-based payments continue to dominate. In an effort to address this challenge, sector regulators have been exploring innovative solutions to facilitate digital payments in remote and network-blind areas. The first cohort of RBI’s Regulatory Sandbox, for instance, focused on the “Offline Payments” use case, exploring various technology options to tackle this issue.

HaRBInger, the first hackathon organised by the RBI in 2021, focussed on the theme of “Smarter Digital Payments.” The objective of the hackathon was to identify and develop solutions that could make digital payments more accessible to the under-served, improve the ease of payments and user experience, while also enhancing the security of digital payments and promoting customer protection. Among the runners-up was ExtoPay, which offers card-to-card offline payments to individuals who do not have access to a mobile device.

In January 2022, RBI released a Framework for Facilitating Small Value Digital Payments in Offline Mode that defined offline payments as a transaction which does not require internet or telecom connectivity. Since then, on-device offline wallets linked to UPI have been playing a leading role in enabling such payments.

Currently, two solutions, namely NPCI’s UPI Lite and HDFC Bank’s Offline Pay, operate in India’s financial ecosystem to provide offline payment functionality. These solutions require users to top up their accounts for small value payments of up to INR 200 in areas with no network connectivity. Offline payment solutions can help reduce the operational stress on banks’ core banking infrastructure, which is reported to have led to system glitches and a higher rate of transaction rejections on the UPI platform.

Offline payments are not meant to compete with existing payment channels but to provide a viable and efficient alternative for small-value payments in areas or scenarios with network issues. In the long run, seamless switching between payment modes and cross-wallet interoperability would provide a frictionless payment experience independent of any network dependency.

Working closely with partner banks, we at RBIH have conceptualised and facilitated the online submission of 15G and 15H forms. These are self-declaration forms submitted by individuals to their banks, requesting that TDS not be deducted from interest if their income is below the basic exemption limit. This facility is primarily used by senior citizens.

The initiative is expected to make the submission of these forms more intuitive and convenient for senior citizens, who typically stand in long queues to complete this process. Keeping in mind their discomfort with net banking, the solution uses bank omni channels such as Whatsapp, SMS, ATMs, and websites.

RBIH CEO Mr Rajesh Bansal co-authored an op-ed article ‘Doing Justice with AI’ in the Financial Express with Mr Revant Solanki, advocate at the Supreme Court of India. The article opines about the changing nature of provisioning citizen services in the wake of digital transformation over the past two decades. They delve deep into a use case for the application of Artificial Intelligence (AI) algorithms in Indian judicial institutions to help reduce the high case pendency in our judicial system. While articulating the benefits of such a technology-led intervention, they also stress on the need for it to be continuously reviewed by judicial experts to ensure optimal results.

It was an honour for the RBIH team to have Mr. Amarjeet Sinha, the Chairman of the Gender Expert Committee, former Advisor to the Prime Minister and Secretary of the Ministry of Rural Development, visit our headquarters. With his decades of experience in rural development, gender equality, and financial inclusion, Mr. Sinha shared his invaluable insights with our team. During a fireside chat with Mr. Rajesh Bansal, he emphasised the crucial role that innovation and technology can play in driving sustainable development and empowering underserved communities.

He also highlighted the significance of building an inclusive and gender-sensitive ecosystem, especially in the context of financial services and technology. We engaged in a thought-provoking and open conversation with Mr. Sinha, during which he generously shared his insights, and addressed our inquiries. We are excited to incorporate his wisdom into our endeavours, fueling our enthusiasm for the tasks at hand.