ECONOMIC SURVEY: CHAPTER 2
MONETARY & FINANCIAL SECTOR DEVELOPMENTS IN INDIA (PART 3)
Technological Innovations in Banking:
Historical Context: Over the past several decades, banks have consistently adapted to the latest technological innovations to redefine customer interactions (how banks communicate and engage with customers).
Key Milestones:
- 1960s: Introduction of ATMs (Automated Teller Machines, machines that allow customers to withdraw cash and perform other banking functions without human assistance).
- 1970s: Introduction of electronic card-based payments (payments made through debit or credit cards powered by electronic systems).
- 2000s: Widespread adoption of 24/7 online banking (the ability to access banking services at any time via the internet).
- 2010s: Rise of mobile banking (using smartphones and other mobile devices to perform banking tasks).
- Current Era: The world is now in the artificial intelligence (AI)-powered digital age (an era driven by technologies like AI and machine learning) due to decreasing data storage (storing data digitally) and processing costs (costs associated with computing power), greater accessibility (ease of access to technology), and connectivity (availability of networks that enable devices to communicate with each other).
Benefits of AI: These innovations can lead to higher automation (processes carried out automatically using technology) and often enhance human decision-making speed and accuracy when managed properly to mitigate risks (the potential for loss or negative outcomes).
INTERNATIONAL GUIDELINES WRT AI
- OECD Principles: The Organisation for Economic Cooperation and Development (OECD) has outlined core principles governing the use of AI, which include:
- Inclusive growth (economic growth that benefits everyone),
- Respect for the rule of law (ensuring laws are followed in AI use),
- Transparency and explainability (being clear about how AI works and its decisions),
- Robustness and safety (ensuring AI systems are strong and secure),
- Accountability (ensuring those who use AI are responsible for its actions).
- Hiroshima AI Process: The Hiroshima AI Process Comprehensive Policy Framework, established in December 2023, includes a set of guiding principles and a code of conduct, marking a significant step towards a coordinated global approach for the responsible development of AI.
AI GOVERNANCE FRAMEWORK
- RBI Initiatives: Establishing a robust AI governance is the first and crucial step in addressing the challenges that come with the implementation of AI systems in banking.
- The Reserve Bank of India (RBI) has proactively engaged with regulated entities and experts to assess ongoing developments and effectively communicate its expectations through multiple engagement forums.
- Regulatory Sandbox: The RBI has created a regulatory sandbox (a controlled environment for testing new technologies) focusing on innovative technology products/services.
- FREE-AI Committee: The RBI announced the establishment of a committee to create a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector, to ensure that AI is used in a responsible and ethical manner.
INSOLVENCY & BANKRUPTCY CODE
- Purpose: The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive insolvency resolution framework aimed at addressing financial distress (situations where an entity cannot meet its financial obligations) and NPAs.
- Resolution Plans: By September 2024, 1,068 resolution plans were approved under the Code, resulting in creditors recovering ₹3.6 lakh crore—161% of liquidation value (the amount realized from selling assets in case of liquidation) and 1% of fair value (the estimated value of assets under normal market conditions).
- Liquidation: By September 2024, 79 corporate debtors (CDs) were closed under liquidation, with claims of ₹1.4 lakh crore and a liquidation value of ₹4,678.2 crore, yielding ₹3,674.1 crore.
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