The Reserve Bank of India on Tuesday barred state-owned Bank of Baroda from onboarding new customers on its mobile app ‘bob World’ following material supervisory concerns. The state-owned lender said it has already taken corrective action to address the central bank’s concerns and has started additional actions to close any holes that may still exist in response to the RBI’s directives.

“The Reserve Bank of India has, in exercise of its power, under Section 35A of the Banking Regulation Act, 1949, directed Bank of Baroda to suspend, with immediate effect, any further onboarding of their customers onto the ‘bob World’ mobile application,” the central bank said in a statement. The action, the RBI said is based on certain material supervisory concerns observed in the manner of on boarding of their customers onto this mobile application.

“Any further on boarding of customers of the bank on the ‘bob World’ application will be subject to rectification of the deficiencies observed and strengthening of the related processes by the bank to the satisfaction of RBI,” it added. Bank of Baroda has been further directed to ensure that already on boarded ‘bob World’ customers do not face any disruption on account of this suspension. In a filing to stock exchanges, the bank said, “We will work closely with the RBI to address their concerns at the earliest to their satisfaction”.

The lender also assured its customers that they will not face any disruption and continue to experience uninterrupted services on the mobile app. “Further, this order does not impact any of the bank’s other digital banking channels such as net banking, WhatsApp banking, debit cards, ATMs, etc, for servicing its existing customers as well as for on boarding of new customers,” the lender added. The bank does not expect the RBI’s action to have a material impact on its overall business and growth plans.

In December 2020, the RBI had barred HDFC Bank from issuing new cards and launching new digital initiatives after repeated instances of technical outages, which is the market leader in the credit cards segment. Following several occurrences of breakdowns in online banking, mobile banking, and payment utilities over the previous two years, the RBI took action.

In August 2021, the RBI partially restored the prohibition on card issuances after HDFC Bank took corrective action. The prohibition against starting new technological ventures persisted, though, and it was repealed in 2022.

Regulatory action preventing Kotak Mahindra Bank from onboarding new customers online or issuing new credit cards could give a setback to credit growth and profitability. Credit cards are a higher-yielding target growth segment for Kotak Mahindra Bank with the portfolio growing at 52 per cent year-on-year as of 31 December, 2023 compared with total loan growth of 19 per cent.

Action by the Reserve Bank of India (RBI) this week could push the bank to rely more on physical branch network expansion to supplement growth thus entailing higher operating costs, says S&P Global Ratings. In a similar case in 2020 related to HDFC Bank’s suspension on sourcing new credit card customers, it took the bank more than a year to meet the RBI’s requirements and have restrictions lifted. The RBI announced on 24 April, 2024 that Kotak Mahindra Bank will not be allowed to onboard new customers through online and mobile banking channels or issue new credit cards.

This follows several outages of the bank’s core banking systems as well as online and digital banking channels and deficiencies identified through the RBI’s IT examinations in 2022 and 2023. The RBI’s order will not, however, materially affect S&P’s ratings on Kotak Mahindra Bank, the report assures, because credit cards make up a small 4 per cent of total loans as of end December 2023.

The central bank said that the regulation would be effective from April 24, 2024.

In a significant regulatory development, the Reserve Bank of India (RBI) imposed restrictions on Kotak Mahindra Bank (KMB) on April 24, prohibiting the bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards. The central bank cited supervisory concerns over KMB’s technology platforms as the rationale behind this action.

According to the RBI, these measures were initiated following an examination of the bank’s IT systems over the past two years, during which KMB reportedly failed to adequately address identified concerns. While the ban does not affect existing customers, it is expected to impact the bank’s new customer acquisition efforts significantly, given that a substantial portion of account openings occur through online and mobile banking channels.

Moreover, the prohibition on issuing new credit cards is likely to impact KMB’s credit card business, including its co-branded credit card deals, as per industry experts. The RBI’s decision was motivated by observed deficiencies and non-compliance in various aspects of KMB’s IT infrastructure and risk management practices, including IT inventory management, patch and change management, user access management, and data security protocols.

Notably, the RBI highlighted KMB’s repeated IT system outages, including a service disruption on April 15, 2024, as evidence of inadequate operational resilience and failure to address underlying technology issues. Despite continuous engagement with the bank over the past two years to address these concerns, the RBI deemed the outcomes unsatisfactory, prompting regulatory intervention.

The central bank emphasized that its actions were aimed at safeguarding customer interests and ensuring the stability of the financial ecosystem. However, the imposed restrictions are subject to review upon completion of a comprehensive external audit commissioned by KMB, with remediation of identified deficiencies.

This is not the first instance of the RBI taking regulatory action against a major Indian bank over technology-related concerns. In 2020, HDFC Bank faced similar restrictions following recurring outages in its online platforms. While the ban on new digital launches was partially lifted in subsequent years, it underscores the RBI’s proactive approach to enforcing compliance and ensuring robust IT infrastructure across the banking sector.

Following the announcement, shares of KMB closed at Rs 1842.95 apiece on the BSE, registering a modest increase of 1.65 per cent from the previous close, while the benchmark Sensex ended nearly flat. The RBI’s intervention underscores the critical importance of maintaining resilient technology platforms in the banking industry and reinforces the need for banks to prioritize IT infrastructure investments and compliance with regulatory requirements to mitigate operational risks and safeguard customer interests.

OpenAI, backed by Microsoft Corp., has appointed Pragya Misra as its first employee in India, naming her as the head of government relations. The move comes as India votes in a new administration, a crucial time for shaping artificial intelligence regulations in the country. Misra, 39, previously worked at Truecaller AB and Meta Platforms Inc. She is set to start at OpenAI toward the end of the month. Her appointment signals OpenAI’s efforts to advocate for favorable regulations as governments worldwide grapple with how to regulate AI technology.

India, with its vast population and rapidly growing economy, presents significant growth opportunities for global tech companies like OpenAI. However, navigating India’s regulatory landscape can be challenging due to local lawmakers and regulators prioritizing the protection of domestic firms. OpenAI representatives and Misra did not respond to requests for comment outside regular US office hours. Misra’s experience in leading public affairs at Truecaller and Meta Platforms Inc., where she spearheaded WhatsApp’s campaign against misinformation in 2018, positions her well for her new role at OpenAI.

In India, OpenAI faces competition from tech giants like Alphabet Inc.’s Google, which is developing AI models tailored for the country, aiming to cater to diverse linguistic needs and widen internet access. OpenAI CEO Sam Altman emphasized the importance of integrating AI technologies into government services, particularly in sectors like healthcare. Altman, who has previously met with Prime Minister Narendra Modi, underscored India’s role as an early adopter of OpenAI’s generative-AI service, ChatGPT.

While Altman has advocated for more regulations in the AI space, he has also expressed concerns about the potential harm caused by the technology. He believes that while significant regulatory changes may not be necessary for current AI versions, they may become essential in the near future. OpenAI’s decision to appoint its first employee in India reflects the company’s recognition of the country’s importance in the global AI landscape.

With a population of 1.4 billion and a rapidly growing economy, India presents a vast market and innovation hub for AI technologies. By establishing a presence in India, OpenAI aims to leverage local talent and resources to drive its growth and influence in the region. Pragya Misra’s appointment as head of government relations underscores OpenAI’s commitment to engaging with policymakers and stakeholders in India.

Her experience in navigating regulatory environments and building partnerships will be instrumental in advancing OpenAI’s interests and objectives in the country. India’s government has shown increasing interest in AI regulation and adoption, recognizing its potential to transform various sectors, including healthcare, education, and governance.

As AI technologies continue to evolve, policymakers are grappling with issues related to privacy, security, and ethical use, making effective government relations crucial for companies like OpenAI. Moreover, OpenAI’s competition with tech giants like Google highlights the importance of strategic positioning and advocacy efforts in India’s competitive market.

By proactively engaging with regulators and policymakers, OpenAI seeks to shape the regulatory landscape in its favor while also fostering collaboration and innovation within the AI ecosystem. Overall, OpenAI’s decision to establish a presence in India and appoint a government relations head underscores its commitment to driving responsible AI development and adoption globally.

As the company expands its footprint in India, it is poised to play a significant role in shaping the future of AI in the region and beyond.

The WEF-Cambridge report shows that fintech firms are positive about their regulatory environment, which supports their operations and growth.

A combination of policy changes such as bankruptcy law and taxation code and the enabling environment created by the digital public infrastructure has made India an attractive investment destination for the financial technology sector, a senior World Economic Forum (WEF) official said.

In a video interview with the media, Matthew Blake, Head of the Centre for Financial and Monetary Systems at the WEF said India has been one of the best performing markets in the world and investors have made money here. Blake also struck a word of caution saying that since markets do not move in a purely linear fashion and were prone to ‘’ups and downs’’, there was a need to educate investors. ‘’So this idea of being an informed investor, a diversified investor, and having access to educational resources to do that is really fundamental artificial intelligence (AI),’’ he said. ‘’I think a combination of different policy choices that have been made make India quite an attractive investment destination. In addition to the digital public infrastructure that creates an enabling environment from a technological standpoint, you also have changes in the bankruptcy law and taxation code adding clarity,’’ he said.

Blake said a survey of fintech CEOs by the WEF and the Cambridge Centre for Alternative Finance had revealed that 70 per cent of the firms considered AI as a major force and could be deployed for personalisation and customisation of products and services. Blake said for sectoral regulators, AI could be helpful in the context of risk management and there was a need for them to adapt to the rapid changes in technology. ‘’The sophistication level of the regulatory authorities will also need to increase commensurate with the business sector and talent. Technology, and technologically savvy talent, will be at a premium. And that’s true in the private sector, and that’s true in the public sector,’’ he said. Blake said in the Asia-Pacific region, the regulatory agencies were generally viewed as being quite skilful. ‘’When you look globally, obviously there are varying levels of sophistication of markets. This brings an opportunity globally to share best practices and competencies,’’ he said.

‘’One of the things that we’re looking at is how do you bring the most sophisticated actors in the financial services space from the private sector together in a knowledge exchange with some of the key supervisory bodies,’’ Blake said. ‘’It is absolutely in the best interests of the business sector that their corresponding regulator understands as closely as they do their activities and the technologies they’re using to conduct those activities. So, it is in the mutual best interest to share that information and to try and level set. That is a rather large challenge, but it’s something that we as a team are looking at currently and trying to devote some time to,’’ Blake said.

The WEF-Cambridge report on ‘The Future of Global Fintech: Towards Resilient and Inclusive Growth’, released in January, found that the majority of financial technology companies hold a positive view of their regulatory environment, with 63 per cent rating it as adequate. Additionally, 38 per cent of surveyed fintechs cited the regulatory environment as a major supporting factor for their operations and growth.