shyamala gopinath : technology in banks – responding to the emerging challenges inaugural address by ms shyamala gopinath, deputy governor of the reserve bank of india, at the cii ’ s banking tech summit 2009, mumbai, 23 march 2009. assistance provided by mr ganesh kumar and mr sujit k. arvind in preparation of the address is gratefully acknowledged. * * * ladies and gentlemen, a very good morning. a central banker addressing an impressive gathering of technology experts on a topic which is their very own – to say the least, is a formidable task. in the current global financial context, though, i may not be surprised if many central banks, as regulators of banking and other financial institutions get more engaged with the technology aspects of the regulated institutions ’ operations. it is not hard to miss the role played by greater technological integration in transforming the image of banking as model centric blackboxes, unrecognizable from the traditional brick - and mortar systems. not surprisingly, the internal audit and financial reporting systems within the banks were not given similar focus probably because effective, real time data analytics requires huge data crunching that involves cost. it may be something to ponder that while a lot of focus is given to using technology to manage client and customer accounts at banks and the trading systems, the same level of sophistication does not extend to internal auditing, accounting and financial reports. in india, the situation of the banks is quite different from the banks overseas particularly in developed markets. indian banks are not facing huge write downs or losses and are still quite well capitalized. there may be a slowdown in credit but that is more a reflection of the broader economic slowdown - the impact of the real sector on the financial sector. in this context, for india the theme of the seminar, which refers to ‘ sustaining the growth momentum ’ is quite apt. globally, the it spends of financial institutions are expected to go down drastically in 2009 - 10. in india, however, this could be an opportune moment for banks to focus on the internal processes and consolidate their it platforms across functionalities to use technology as an effective strategic tool. it is also an opportunity for the technology companies to gear up to meet the demands of the domestic market for new technology as well as expanding existing technologies. the use of technology in india has undergone rapid transformation. the last two decades have witnessed a sea change in the nature of services offered by not only

##s, inside employees or even ex - employees to name a few. money laundering risk through electronic channel and its countering is also a challenging task for the banking and financial system. though indian financial system has not been affected to that extent from these risk factors as compared to its counterpart abroad, the strengthening of the electronic banking channel by the banks and systems ’ participants will greatly assist in banks ’ and financial institutions ’ efforts for sustaining and consolidating the business growth and above all maintaining confidence. a few organisational issues is security, is audit and adoption of international standards the information system ( is ) security issues, information system audit and adoption of international standards in the technology domain are the other challenges for the indian banks today. these have become more pertinent in view of data breach cases in india as well as abroad in recent times. the financial institutions should conduct is auditing in such a manner to ensure that information systems security policies and standards are enforced in the bank on a ‘ continuous ’ basis rather than at the end of the specified cycle or on a spot basis. the failure to do so may result in serious internal control lapses resulting in loss as i had mentioned earlier. the adoption of international standards and industry ’ s best practices in the it sphere by the financial institutions would certainly result in benefits for them and supplement their efforts for sustaining growth. in this regard, adoption of iso / iec 38500 standard, which is the first international standard for it governance may help organisations for establishing an efficient and effective framework for it governance for a better alignment of it and business goals. the standard provides a single integrated framework that enables the financial institutions to take the full advantages of other standards / frameworks. change management another major challenge which indian banks / financial institutions would encounter apart from the emerging it threats is the ‘ change management ’ issue and the shortage of skilled it personnel in technology development and the information systems security and audit area. it is imperative, therefore, that banks adopt standardised methods and procedures for all technological changes in the organisation to bring efficiency and to save the consequent problems that any organisation usually faces due to non - adherence to ‘ change management ’ principles. in this background and especially in the light of shortage of skilled qualified is security and audit personnel at present, the issues like staff selection, staff retention, staff posting, staff rotation, staff screening, etc. have become more relevant today. i would further like to emphasize the fact that the success of any technological initiative is dependent on ‘