'There is a need for an innovation sandbox where the PSBs can collaborate and then they can do their own innovation on top of it.'
In a first, the finance ministry has asked public sector banks (PSBs) to explore resource sharing and collaboration in implementing emerging technologies such as account aggregators and generative artificial intelligence to enhance their operational efficiency and customer experience.
In the performance-review meeting of PSBs, chaired by Union Finance Minister Nirmala Sitharaman, government-owned banks were told to explore collaboration in human resources (HR) training and use technology to offer services that were made to measure and reduce cost.
"Process automation should happen across every domain -- digital back office, automation of branch-facing roles etc," a senior finance ministry official told Business Standard.
A senior banking official said PSBs spent on technology upgrade in artificial intelligence and machine learning individually, which piled up the cost.
"Collaboration among banks would save cost because there is a need for common infrastructure on cyber security areas, protecting the personal data of users, and boosting information sharing for credit disbursements," he added.
The ministry cautioned PSBs on customer protection when critical services, including technology services, were outsourced.
In April, the Reserve Bank of India, in its final norms for outsourcing information technology by regulated financial-sector entities, said outsourcing would diminish neither their obligations nor those of their boards and senior management, which would be ultimately responsible for outsourced work.
"The banks have been told to leverage analytics to increase coverage of early warning signals, which would help them to identify and reach out to high-risk borrowers.
"Digital linkages in economic activities would further drive future growth," the official added.
The PSBs have been asked to modernise their loan advancement process by transiting to "transaction and cash flow-based lending", using new-age tech, from traditional "asset-based lending".
Such banks are expected to evolve mechanisms to mitigate business risks emanating from FinTech and BigTech.
Pratik Shah, financial services consulting leader, EY India, said the customer experience and analytics part had become a competitive segment for banks and there was a need for more push to the PSBs to enhance their ability to survive in the competitive market because their private peers were way ahead in terms of building a large advanced analytics team.
"The biggest challenge for the PSBs is the availability of talent as compared to private banks in artificial intelligence and machine learning," says Shah.
"There is a need for an innovation sandbox where the PSBs can collaborate and then they can do their own innovation on top of it. Private banks have made a headway in the AI segment by continuously spending on these areas," Shah added.
On corporate governance, the PSBs have been asked to focus on having robust risk management practices and mitigating cyber security risks through technology upgrade.
Last month, RBI Deputy Governor Mukesh Kumar Jain said banks must manage technology adoption by ensuring controls and safeguards to address potential vulnerabilities, he said, adding reliance on third-party technology providers required robust due diligence and risk management practices to mitigate risks associated with outsourcing.
Feature Presentation: Ashish Narsale/Rediff.com