Indian banks boost technology spending amid regulatory scrutiny

Technology spending amid regulatory scrutiny: Indian banks are gearing up to allocate approximately 10 per cent of their operating expenses towards technology investments to align with the escalating trend of digital transactions, as reported by over half a dozen banking officials.

Previously, banks allocated a meagre 6 per cent to 8 per cent of their total operating expenses to technology, significantly lower than the global standard of 10 per cent to 12 per cent.

A surge in scrutiny from the Reserve Bank of India (RBI) over the past year, coupled with recent penalties imposed on Kotak Mahindra Bank for technology-related shortcomings, has prompted banks to take regulatory concerns more seriously.

The RBI has persistently urged banks to mitigate technology-related disruptions that hinder customers' transactional experiences, according to five bankers who chose to remain anonymous due to media restrictions.

Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank, acknowledged that despite increased technology expenditure, their efforts fell short of regulatory expectations, particularly in ensuring seamless operations.

In 2023, the banking and investment sector reportedly spent $11.3 billion on technology, according to Gartner's latest available data.

Sumant Kathpalia, CEO of IndusInd Bank, stressed the necessity for real-time systems in today's digital landscape, affirming their commitment to ongoing investments in technological infrastructure.

The augmented investment will primarily target core system upgrades, bolstering fraud detection mechanisms, safeguarding customer data, and streamlining digital verification processes, as outlined by banking officials.

Private lenders such as ICICI Bank, Axis Bank, Yes Bank, and Kotak Mahindra Bank have all announced intentions to ramp up IT spending to accommodate the surge in digital transactions, including those facilitated by the Unified Payments Interface (UPI), India's domestic payment system.

Despite the growing digital adoption, the frequency of outages has escalated, prompting concerns from regulators regarding the banking system's preparedness to manage the surge in digital transactions.

The Reserve Bank of India refrained from immediate responses to email inquiries regarding these developments.

Rohan Lakhiyar, a partner at Grant Thornton Bharat's financial services risk division, highlighted the pressing need for banks to modernise their core banking systems to cope with the digital influx and fortify cybersecurity measures to mitigate operational risks.

Amit Khurana, head of equities at Dolat Capital, suggested that banks' heightened IT spending reflects both regulatory pressures and the imperative to revamp backend systems amid accelerated digital adoption.

(with Reuters inputs)