Rajeshwar Rao: Innovations in banking - the emerging role for technology and AI

Remarks (virtually) by Mr Rajeshwar Rao, Deputy Governor of the Reserve Bank of India, at the 106th Annual Conference of Indian Economic Association, Delhi, 22 December 2023. 

Central bank speech  | 
10 January 2024

Distinguished participants, Good Morning.

At the outset, let me thank the organisers for inviting me and giving this opportunity to share a few thoughts on this very pertinent theme of finance, banking and technology. In my address, I would largely focus on RBI's efforts to foster innovation in financial ecosystem and how the emerging technologies such as artificial intelligence are likely to reshape the financial landscape.

The banks have played an extremely important role in supporting the growth story of the Indian economy. If we were to analyse the evolution of Indian banking sector over the last 5 decades, we can classify this evolution in three distinct phases – post nationalisation, liberalisation, and the third and current phase which we could term as democratisation.

The level of financial intermediation at the time of independence was quite low in India – ranging below 10 per cent of the GDP. This was, more or less, the case over the next two decades or so. With limited financialisation and outreach of banking services, the scope to mobilise deposits, facilitate credit flow, and support the aspirations of a developing nation was constrained. But this trend changed with the nationalisation of banks which ensured wider banking reach. This led to opening of bank branches across the country resulting in greater mobilisation of deposits and growth in credit, primarily for catering to the credit needs of priority sectors.