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RBI flags digitilization risks in currency and finance report
In its currency and finance report, RBI outlines risks of digitalization, including cybersecurity, financial fraud, impulsive spending, and herd behavior
Digitalization is transforming India’s financial sector by changing the way financial institutions operate and interact with customers and offer products and services, but it comes with challenges including cybersecurity risks, scope for financial frauds, impulsive spending, and herd behavior, according to the Reserve Bank of India (RBI).
It can affect inflation and output dynamics, and monetary policy transmission with the overall impact varying over time, RBI said in its Report on Currency and Finance for 2023-24, while explaining how digitalization could have implications for monetary policy.
Cybersecurity remains a key challenge, owing to the diverse nature of cyber threats targeting the digital financial infrastructure, the report said while highlighting the massive jump in cybersecurity incidents handled by the Indian Computer Emergency Response Team (CERT) from 53,117 in 2017 to 13,20,106 in January-October 2023. hted that
The report said unauthorized network scanning, probing, and vulnerable services accounted for more than 80% of all security incidents in India.
“It is expected that the report will enable appreciation of the various contours of digitalization in finance and the ways in which the common person is served while contributing to the overall economic and financial development of the Indian economy,” RBI governor Shaktikanta Das said in the foreword of the report.
Break-up of cyberattacks
Giving a break-up of cyberattacks in the country, the report said the automotive industry is the most vulnerable, with smart mobility application programming interfaces (APIs) and electric vehicle (EV) charging infrastructure emerging as major attack vectors.
The financial sector sector, which is governed by well-defined regulations, is relatively protected from such attacks, the report said.
The average cost of a data breach in India stood at $2.18 million in 2023, a 28% jump from 2020. Globally, the average data breach cost has risen to $4.45 million in 2023, a 15% increase over three years.
Most common attacks in India are phishing (22%), followed by stolen or compromised credentials. The report findings further estimated that globally, cybercrime costs are expected to reach $13.82 trillion by 2028, up from $8.15 trillion in 2023.
The share of complaints related to mobile or electronic banking, ATM or debit cards, and credit cards received in the offices of the RBI ombudsman accounted for 47% of total complaints in 2022-23, reflecting the increasing adoption of digital payments, the report said.
The online nature and cross-border reach of digital payments and trade across multiple jurisdictions with diverse regulatory frameworks “necessitates effective regulation through global collaboration, harmonization, and promotion of common protocols, standardized APIs, and secure communication channels,” it added.
The report added that globally, efforts are underway to harmonize cybersecurity regulations and anti-money laundering or countering the financing of terrorism (AML/CFT) frameworks.
It said that the Group of Seven, the Basel Committee on Banking Supervision, the Financial Stability Board, and the Committee on Payments and Market Infrastructure, and the International Organisation of Securities Commissions (CPMI-IOSCO) have issued high-level principles on cybersecurity to foster convergence in cyber resilience strategies to tackle the same.
In response to regulatory and customer protection challenges in the digital lending ecosystem, the Reserve Bank issued the Guidelines on Digital Lending based on recommendations of the Working Group on Digital Lending. These guidelines include provisions for loan servicing, comprehensive disclosures such as the key fact statement (KFS), grievance redressal mechanisms, credit assessment standards, and borrower data privacy. Implementing the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS) has resulted in structural improvements in the grievance redress mechanism, the report said.
The report was prepared by a Department of Economic and Policy Research team and carries inputs from several operational departments.