By CIO Insider Team
 

RBI Deputy Governor Rohit Jain has raised concerns over the growing concentration risk in the banking sector, as financial institutions increasingly rely on a limited number of cloud, technology and AI model providers. He warned that a disruption or failure at a common service provider could potentially affect multiple banks simultaneously, creating wider risks across the financial system.

Speaking at the Global Fintech Fest in Mumbai on Wednesday, Jain said technologies such as artificial intelligence, tokenization, distributed technologies and quantum computing have the potential to make financial services more affordable, accessible and efficient.

However, he cautioned that these technologies could also intensify risks by increasing the speed, scale and interconnectedness of financial systems.

"I see three key concerns as emerging technologies become more deeply embedded in finance: speed, concentration and opacity," Jain said. "None of these risks is entirely new, but technology can amplify them and allow their effects to travel through the financial system in ways that are faster, wider and sometimes harder to detect.

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"On concentration, Jain said financial institutions could increasingly rely on a relatively small number of cloud providers, technology vendors and model providers, often using overlapping datasets and similar infrastructure, he said, meant that the failure of a common provider could become a financial-system problem rather than an isolated institutional failure.”

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The concern is therefore not simply the failure of one institution, but the possibility that a common dependency could transmit disruption or error across many institutions at the same time," he said.

"An institution may outsource the computation, but it cannot outsource the consequence," he said, adding: "Technology also does not eliminate traditional risks."

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At the event, Jain also launched RBI's Forex Multicurrency facility in collaboration with the Clearing Corporation of India Limited (CCIL) and NPCI Bharat Bill Pay Limited (NBBL). The facility expands the FX Retail offering through Bharat Connect to five additional currencies - euro, British pound, Swiss franc, Canadian dollar and UAE dirham - alongside the US dollar.