More than half a dozen bankers said Indian banks plan to increase their technology spending to around 10% of their operating expenses to cope with the increase in digital transactions, as the central bank steps up its control over frequent breakdowns.
Previously, banks spent between 6% and 8% of their total operating expenses on technology, which is significantly lower than the global average of 10% to 12%.
However, increased monitoring of banks’ IT systems by the Reserve Bank of India (RBI) over the past year and recent sanctions imposed on Kotak Mahindra Bank over technological deficiencies are forcing lenders to take the concerns of the regulator.
The RBI has often asked banks to reduce technical glitches that disrupt customers’ ability to transact, said five bankers, who declined to be identified because they are not authorized to speak to the media.
As operating expenses have increased over the years, Kotak Mahindra Bank has spent “considerably” more on technology, Ashok Vaswani, managing director and CEO of Kotak Mahindra Bank, said in a post-publication press conference. results.
However, “what is evident is that our efforts have not lived up to regulators’ expectations,” Vaswani said.
According to the latest available data from Gartner, Indian banking and investment firms are estimated to have spent $11.3 billion on technology in 2023.
“We believe that in today’s world, systems cannot be broken and you need to create online and real-time systems to meet the capabilities,” said Sumant Kathpalia, CEO of private lender IndusInd Bank, which currently spends about 8-10% of its costs on information technology expenses.
“We have invested and will continue to invest in this area,” he added.
The increased investments will be used to upgrade the core systems that form the backbone of all banking operations, better monitor digital fraud, protect customer data and put in place technological processes for verification of customers, bankers said.
Other private lenders like ICICI Bank, Axis Bank, Yes Bank and Kotak Mahindra Bank recently said at post-results events that they would increase their IT spending to cope with the increase in digital activity, including transactions through the Indian payment system Unified Payments Interface.
More than 40% of payments in India are now digital, but outages have become more frequent.
In discussions with lenders, the RBI found that the banking system was not adequately prepared to handle the growth in digital banking transactions, one of these bankers said.
The RBI did not immediately respond to emailed queries.
“Most banks’ core banking systems are quite old and they are now evaluating whether the systems can handle the increase in digital activity,” said Rohan Lakhiyar, partner in the firm’s financial services risk division. Grant Thornton Bharat consultancy.
The other area of focus for both banks and the RBI is cybersecurity, as every new technology integration done by banks also raises operational risk, Lakhiyar added.
“Banks’ plans to increase their IT spending appear to be based on the RBI’s tougher approach to technology issues and the need to upgrade back-end systems as banks increasingly address additionally to clients digitally,” said Amit Khurana, head of equities at Dolat Capital.
