24/7 online and mobile banking may heighten vulnerabilities and liquidity crisis for banks: RBI DG Swaminathan J

New Delhi [India], August 14 : Online banking services like Internet banking and mobile banking may increase the chances of liquidity crisis during periods of stress, highlights RBI Deputy Governor Swaminathan Janakiraman during an event in Jaipur on Wednesday.
He added that the expansion and widespread adoption of digital payment systems has enabled rapid, low-cost transactions and easy withdrawals via online banking and mobile apps. However, this shift increases the risk to operational stability and resilience.
"The 24/7 availability of online and mobile banking can heighten vulnerabilities, potentially accelerating bank runs and liquidity crises during periods of stress, as customers may withdraw funds even outside of traditional banking hours and without having to visit a Bank branch" said Deputy Governor.
The deputy governor was speaking at the International Conference of the International Association of Deposit Insurers- Asia Pacific Regional Committee (IADI-APRC) hosted by the Deposit Insurance Credit Guarantee Corporation (DICGC) held in Jaipur.
He also added that the financial sector is a prime target of frequent cyberattacks due to the vast amounts of sensitive data and capital it handles and the financial institutions need robust business continuity preparedness by testing their systems periodically encompassing possible adverse combinations.
Advising the financial institutions to reassess and update their crisis preparedness he stated that institutions need to ensure that they are equipped to address and mitigate the fast evolving risks introduced by technological advancements.
"Financial institutions must exercise effective oversight of third parties and safeguard against potential vulnerabilities and also maintain regular backups of their critical data to ensure operational resilience" Deputy governor added.
For the fintech companies he added that the rise of fintech companies and the entry of entities that operate outside the traditional regulatory and supervisory framework introduce new dimensions of risk to the financial sector.
He mentioned that while fintech innovations have greatly enhanced financial inclusion, efficiency, and customer experience, they also present challenges related to data security, consumer protection, and regulatory compliance.
"Financial institutions have the primary responsibility to preserve the Confidentiality, Integrity, and Availability of data, whether stored, processed or in transit within themselves or at third-party vendors' end" he added.
Finally, he advised to the deposit insurers that they must prioritize crisis preparedness by developing comprehensive contingency plans that account for technology-induced disruptions. This includes conducting regular stress tests and simulations to assess the potential impact of cyber incidents or fintech failures on financial institutions and the broader financial system.