in large number of technology - related frauds that we have witnessed across indian banks in the past few years. though from a value view point these frauds are not significant, still from an individual ’ s stand point they are bis central bankers ’ speeches quite important. the banks would also need to recognize and manage risks arising from misselling etc. besides the other business risks like market risk, liquidity risk, interest rate risk etc. unless, the banks address these issues quickly, even the low - value frauds would have the potential to cause reputational risk and unwarranted litigation for the banks. it is, therefore, absolutely important that the banks improve their risk management systems to address these vulnerabilities. ( e ) countering the effects of disruptive new technologies 25. retail banking has been most impacted by technology, thanks to the proliferation of alternate channels of delivery ( atms, internet and telephone banking ). the pace with which consumers in the developing countries have also adopted digital technologies has been quite amazing. according to available statistics, by the end of 2011, china and india were ranked first and third respective in the global league table for number of internet users. also the use of mobile platforms for accessing internet has been staggering : in china, 65 percent of mobile - phone users regularly access the internet via their phones, while in india, mobile - only web browsers are expected to comprise 55 percent of the total internet user base by 2015. as a corollary, the use of traditional delivery channels for accessing banking services has seen a perceptible decline. according to a mckinsey personal financial services survey, in 2011, in both the emerging and developed markets in asia, there was a significant decline ( more than 25per cent ) in the number of consumers visiting branches for accessing banking services than in earlier years. likewise, the use of digital - channel for accessing banking services also showed significant increase ( in excess of 35 per cent ). while the number of bank customers in india and few other developing countries may still be low, but the banks have to be cognizant of this emerging trend and quickly adjust to the new paradigm where more and more of their customers move online for accessing banking services. as the demographic changes take place the “ technology acceptors ” will soon outnumber the “ technology deniers ” and banks have to use this short transitory period to adequately equip themselves to manage the disruptions arising out of

internal controls. further, in the existing models followed in many work areas in banks, data flows and reporting for mis as well as external filings require manual interventions and multiple database access / sourcing. this not only affects the timeliness of data submission but also the quality thereof. errors in submitted data and, sometimes, subjective interpretations of data submission requirements lead to wrong decisions and, may be, serious consequences. rbi has taken the initiative in the form of automated data flow project, through which an attempt is being made to ensure that all banks start furnishing reports to rbi by means of straight through / automated processes which do not require manual intervention. this will ensure that reporting is error free, direct from business data and timely. i hope, all of you will whole heartedly co - operate and ensure early implementation of this initiative. challenges in it usage – costs and risks wide spread technology deployment in the banking business has brought to the fore some new issues and challenges. these can be broadly divided into two categories – costs and risks. costs – in terms of increasing expenditure on it deployment and, risks – resulting from – reliance on it systems without necessary safeguards. cost aspects can be addressed by synergizing it deployment objectives with the broader, strategic business objectives to ensure adequate operational and management controls over purchase as well as maintenance of appropriate technology solutions. oversight and governance mechanisms have to be strengthened to ensure that costs involved in it management are properly evaluated and controlled, technology deployment decisions are based on holistic and considered evaluation, the solutions / process changes have customer in focus and that banking organizations do not end up investing in technology which hampers customer interests. the second aspect relating to it risks is a very critical issue. with the increased use of it, there are attendant risks posed to the banks as well as their customers in terms of monetary loss, data theft, breach of privacy and banks need to be extremely cognizant of such risks. another significant aspect of banking business is regulatory and supervisory compliance. with the growth and globalization of markets in general and in the aftermath of recent crisis bis central bankers ’ speeches in particular, number of such compliance requirements is increasing. basel ii & iii implementation brings in huge challenges. it requires enormous amount of continuous data capturing for analysis, risk measurement and provisioning, as also validation of models and processes deployed for such assessments. all this has to be essentially carried out using technology based applications. however, these requirements will entail some costs and banks will have to see