India: Financial institutions encouraged to leverage AI, blockchain for sustainable growth

India’s central bank has urged local financial institutions to accelerate the use of artificial intelligence (AI) and blockchain technology to improve customer service.

The latest calls from the Reserve Bank of India (RBI) came during a conference for CEOs of commercial banks under the theme of reducing systemic risk in the space. In a speech to the participants, RBI Deputy Governor Mahesh Kumar Jain revealed that harnessing AI and blockchain has the potential to provide solutions to a number of challenges facing payments in India.

His speech focused on the need for commercial banks to strengthen their existing corporate governance structures to remain resilient in the face of ever-increasing risks. Jain pointed out that new technologies such as digital currencies pose significant threats to the financial system, given their propensity for contagion.

Indian banks felt the tremors after FTX’s collapse in 2022, while 116-year-old SVC Co-operative Bank Limited (SVC Bank) was forced to issue a statement distancing itself from US-based Silicon Valley Bank (SVB).

Jain identified other challenges facing Indian banks, including cyber security threats, disruption from technological innovation and “evolving customer expectations”. The Deputy Governor revealed in his speech that Indian banks could stay ahead through proactive use of AI and blockchain.

Despite Jain’s calls, Indian commercial banks face the difficult task of integrating blockchain into their offerings. Earlier plans by banks to set up a common blockchain-based settlement platform fell through after Finance Minister Nirmala Sitharaman confirmed the government’s stance against the technology.

In a written response to lawmakers, Sitharaman explained that only a fraction of Indian banks had indicated interest in using blockchain, making the launch of a national platform an exercise in futility.

Indian banks can use regenerative AI technology to do predictive analytics for their customer base while developing personalized services tailored to individual users.

Other sectors are warming up to blockchain

Experts have argued that India considers its financial sector too delicate to allow experimentation with disruptive technology such as blockchain and AI. An undoubted example is perhaps the RBI’s decision to drop a common blockchain platform in its central bank digital currency (CBDC) pilots.

However, other sectors have recorded impressive adoption rates for blockchain and are poised to send adoption rates over 50%. Several blockchain use cases have been deployed in security, education, healthcare and real estate, while municipal governments are using the technology to improve administrative processes.

See: India to be the largest blockchain nation in 5 years: IPv6 Forum’s Latif Ladid

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