r gandhi : information technology – new gauntlets for banks opening remarks by mr r gandhi, deputy governor of the reserve bank of india, at the 12th idrbt ( institute for development and research in banking technology ) banking technology excellence awards function, hyderabad, 18 july 2016. * * * assistance provided by shri s ganesh kumar, cgm is gratefully acknowledged. 1. honourable governor dr raghuram rajan, members of the governing council of idrbt, chiefs of banks, heads of it departments of banks, director, idrbt, faculty members, students, ladies and gentlemen. it gives me great pleasure to be present at the 12th idrbt banking technology awards. 2. i am glad to be back to be directly dealing with the subject of technology yet another time. i have the unique honour of having been and being associated with idrbt in every possible role – as a recipient of training, as a faculty, as an invitee to the general council, as the director, as a member of the general council and as the chairman of the council ; that ’ s a special privilege that i cherish a lot. 3. if one thing that changed the face and the inner core of banking and continuing to change, it is technology. banking and finance lend themselves eminently suitable for such continuous application of technology ; every new development in technology has been gleefully opted for by banking and finance. the ever increasing volume of transactions and ever changing customer expectations are the key differentiating drivers for such an extraordinary use. of course the need to increase efficiency and quality, and reduce cost is also there, like any other vocation. 4. the reserve bank has been very aware of the potentialities of technology for gainful use within the banking system. given the then prevailing adverse environment for free use of technology in the banking sector, the reserve bank carefully crafted an acceptable foundation and path for its adoption and increasing usage, thanks to the rangarajan committee 1 and rangarajan committee 2 in 1980s, saraf and barman working groups in 1990s and 2000s, besides establishing the idrbt in 1996. recently, the reserve bank has established a new institution, the reserve bank information technology ( rebit ) pvt ltd, as its wholly owned subsidiary, for increasing, advanced level focus on cyber security and for building cutting edge capabilities for supervising financial technology usage in the banking sector. reserve bank has also now constituted a working group on financial technology, to fully understand the new

##fis ) through more stringent regulatory and supervisory norms, principles to guide compensation of bank managements, a single set of accounting standards and regulation of otc derivatives, credit rating agencies and hedge funds. there are also several areas where substantial work needs to be done including in improving resolution regimes for cross - border banks and systemically important non - bank financial companies, addressing the procyclicality of the financial system, and macroprudential surveillance. we also need an approach for extending the prudential norms on the lines of basel iii to the shadow financial system which lay at the heart of the recent financial crisis. the financial sector reform agenda is driven by the need to prevent the type of excesses in the financial sectors of the advanced economies that led to the crisis. even so, emes too will have to fall in line and implement these reforms. some of these reforms entailing higher capital and capital buffers will make the financial sector safer, but they come at a cost and pose implementation challenges. let me expand on this a little. both the bank for international settlements ( bis ) and the iif have come out with some preliminary estimate of the macroeconomic impact of the basel iii package. the basel committee too is carrying out an extensive impact assessment study. emes will need to supplement that with their own self - assessments to more accurately determine the impact of the new norms on their financial and monetary systems. in all likelihood, emes will see the cost of credit going up at a time of growing credit demand arising from strong growth, structural transformation of the economy and financial deepening. the challenge for emes will be to balance the tension between implementing basel iii and keeping the cost of credit at an affordable level. in terms of capital, banks in emes typically have higher capital ratios, and can be expected to comfortably meet the higher basel iii capital requirements. however, going forward, as credit expands and bank balance sheets grow, banks will find it necessary to raise further capital to conform to the basel iii requirement. basel iii also poses non - cost challenges. for example, operation of countercyclical buffers will need judgements to be made on the trajectory of the business cycle and on the identification of the inflexion point. wrong judgements can entail huge costs in terms of foregone growth. many of these reforms on the anvil, including some elements of the basel iii package, allow for national differentiation. should emes, keeping in