18

Sa-Dhan Patrika

Volume 7,

Issue 1, September 2006

Use of technology in the financial sector:

Significance of concerted efforts?

Excerpt from the speech of Dr. Y. V. Reddy, Governor, RBI on use of Technology in Financial Sector.

T

increased levels of maturity of the

echnology is a major key to improve

markets and the financial system as a

service outcomes for vulnerable

whole. In realizing the need for financial

populations. It can mean the difference

inclusion which involves the provision of

in  lives  saved.  Deployment  of

banking services to the vast multitude

technology in the financial sector can

of population so far excluded from such

enhance the process of achieving

services, some of the challenges which

efficiency, stability, competition and

need to be effectively addressed

above all service to the common

include lack of adequate infrastructure

person. The foundation for large-scale

in rural areas, relatively low volumes of

induction of IT in the banking sector was

transactions, comparatively higher

provided by the recommendations of

transaction costs, and other factors

the committees headed by Dr. C.

such as the literacy levels of target

Rangarajan, in 1984 and 1989.

customers etc.

To mention a few technology-related

It is expected that with enhanced use

initiatives of the RBI, first is the

of rural oriented technology, the bank

establishment of the mechanized

would be able to provide value addition

cheque processing systems using the

to services offered to the rural clients

Magnetic Ink Character Recognition

and further expand its outreach in a

(MICR); second, the technological

sustainable manner. Banks could

infrastructure created by the IDRBT since

consider the feasibility of using smart

the establishment of the INFINET in 1999;

cards for the 'No Frills Accounts' so as to

third, the introduction of the Real Time

help expand the coverage of the

Gross Settlement (RTGS) System which

banking services and facilitate the

has not only resulted in compliance with

garnering of the much-needed low-cost

the Core Principles for Systemically

deposits.

Important Payment Systems of the Bank

for International Settlements (BIS), but

has also paved the way for risk-free,

Some of the critical factors, which need

credit push based fund transfers settled

to be adequately addressed while

on a real time basis and in the central

dealing with ever-evolving IT is the need

bank money. Fourth, creation of

to ensure appropriate security and

electronic fund transfer systems which

integrity of the data processed and

has now been further enhanced as the

stored in IT systems with an adequate

National Electronic Funds Transfer (NEFT)

backup. Another major requirement

System since November 2005 and

relates

to

disaster

recovery

alleged as having enhanced security

management and the fail-safe business

features as well as facilitating retail funds

continuity plans. The Reserve Bank,

movement  with  multiple  daily

along with the IDRBT, is working on the

settlements, enabling customers to

use of multiapplication smart-card

receive funds swiftly. Finally, in order to

systems which can serve as a bank

improve efficiency and substantially

account and also function as a store of

reduce the time taken for cheque

electronic cash, as a data repository for

processing, the Reserve Bank has

essential information relating to the card

initiated steps to introduce a Cheque

holder, with built-in security features

Truncation System (CTS).

such as biometric identification, and

which can also double up as an

entitlement identifier or as a social

Over the years, the role of the Reserve

security card.

Bank is changing in tune with the