Artificial Intelligence and Central Banking’ August 12, 2020

The Reserve Bank is the current Chair of the SAARCFINANCE, a network of central bankers in the SAARC region. International Department under the aegis of the SAARCFINANCE seminar organised a virtual talk on Artificial Intelligence and Central Banking on August 12, 2020. Dr. David Hardoon, an eminent data scientist and Senior Advisor for Data and Artificial Intelligence at Union Bank, Philippines delivered the talk. The Seminar was attended by more than 100 participants from central banks of SAARC countries, viz. Afghanistan, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka as well as officials of select central office departments of the Reserve Bank.

Dr. Mohua Roy, Adviser, International Department inaugurated the seminar by highlighting the importance of big data analytics, artificial intelligence (AI) and machine learning for central banking from policy, regulatory and supervisory, point of view. She stated that while we embrace new technology we have to address the inherent risks as well as accountability and auditability issues associated with it.

Dr. David Hardoon, in his presentation on “Artificial Intelligence and Machine Learning in Central Bank Operations and its Challenges” stated that AI has to be understood through a spectrum which includes data, modelling and people. The adoption of AI could translate into increased revenue, reduced costs, greater efficiency and better risk management. AI is especially relevant in the banking and financial sector with potential applications in the areas of AML, KYC, customer diligence, identity frauds etc. He stated that AI and advanced technologies such as Machine Learning and Data sciences would enter every spectrum of institutions and therefore, it becomes imperative to devise governance structures to regulate these technologies. According to Dr. Hardoon, accountability is the single biggest challenge associated with the autonomous decision-making employed in such systems. He stressed on the importance of developing guidelines in the use of AI if financial sector which would ensure fairness, ethics, accountability and transparency. Various aspects of AI were discussed which included data collection parameters, algorithmic accountability, algorithmic convergence, magnification and amplification, AI expandability, AI guidelines, Regtech, Suptech etc. He drew attention towards the paradigm shift from “actions driven by findings” to “actions driving proactive prevention” on account of AI.

Mr Hardoon answered questions from the participants on issues relating to data collection, working with limited data, technologies to be adopted by central banks that work with AI, use of AI in other areas like Human Resource Development, amongst others. Smt. Smita Sharma, Director, International Department concluded the session by thanking Mr Hardoon and all the participants for a fruitful session.

Seminar and Meeting Photos

Seminar on ‘Leveraging FinTech for Financial Inclusion: Opportunities and Challenges’, Reserve Bank of India, Udaipur, India, February 05-06, 2020

International Department organised a SAARCFINANCE seminar on Leveraging FinTech for Financial Inclusion: Opportunities and Challenges at Udaipur, on February 05-06, 2020. The Seminar was attended by central bank officials from SAARC countries, viz. Afghanistan, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka and India. Officials of select regional offices and central office departments of the Reserve Bank also participated in the seminar.

Shri M Rajeshwar Rao, Executive Director, inaugurated the Seminar. In his inaugural address, he discussed major developments and policy initiatives in the Fin-Tech and financial inclusion arena, globally and in India. He also highlighted that Fin-Tech offers wide-ranging opportunities, but it is associated with risks to financial stability, which need to be addressed.

Mr. Leonardo Gambacorta, Head of the Innovation and the Digital Economy Unit, Bank for International Settlements delivered the keynote address on ‘Big Techs and Financial Inclusion’. He stated that while the entry of big techs holds the promise of efficiency gains and enhanced financial inclusion, it also presents new and complex trade-offs between financial stability, competition/efficiency and data protection/privacy, which necessitates appropriate policy responses and coordination at the international and domestic levels.

Ms. Ratna Sahay, Deputy Director, International Monetary Fund), provided evidence on the association of financial inclusion with higher growth and lower inequality. She also cautioned that Fin-Tech may lead to new forms of financial exclusion, by putting women, the poor and elderly more at risk. Similarly, Mr. Arup Chatterjee, Principal Financial Sector Specialist, Asian Development Bank, while underscoring the imperative of viewing financial inclusion as a big opportunity in the SAARC region, highlighted some of the fallouts of Fin-Tech such as cyber risk, digital divide and data privacy.

Shri Sharad Sharma of the iSpirt Foundation, attributed India’s substantial progress in financial inclusion to political will, a proactive central bank and the India Stack. Shri Vivek Belgavi of PricewaterhouseCoopers, identified the huge potential of Fintech in the transit and toll segment, blue collar, unbanked female and agriculture segments, newer segments in bill payments and SMEs. Shri Akhil Handa of the Bank of Baroda, discussed neo-banking which is helping to addressed many challenges of the traditional loan process, such as loan processing time, lack of transparency and lack of credit history, in the context of MSMEs.

Shri. C S Azad, General Manager, DoR and Shri S T Punnoose, DGM, FIDD discussed the recent initiatives of the Reserve Bank in the context of the regulatory sandbox and financial inclusion, respectively. A panel discussion on “Is Fin-Tech the Best Driver of Financial Inclusion in Emerging Markets and Developing Economies” was then held which included Shri P. Vasudevan, CGM, DPSS, RBI; Shri Anup Bagchi, Executive Director, ICICI Bank; Shri Naveen Surya, Chairman Emeritus, Payments Council of India and; Shri Hemant Gala, Vice President, Phone Pe, as panelists Shri Somnath Chatterjee, Adviser, International Department, as the moderator. The panelists concluded that a collaborative approach towards Fin-Tech, encompassing banks, non-banks and the regulator would be the best approach towards enhanced financial inclusion.

Shri Mridul Saggar, Adviser-in-Charge, International Department in his concluding remarks observed that DigiTech, FinTech & BigTech are leading to considerable disruption in the traditional banking industry and the big challenge for countries is keep the process well managed. The process of creative destruction has been well-managed in India so far, with traditional banking co-existing with Fin-Tech.

The second day of the seminar was restricted to participants from SAARC central banks. Shri Ajesh Palayi, Research Officer, International Department, presented the results of a quick survey on the developments and issues relating to Fin-Tech and Financial Inclusion in the SAARC countries. Subsequently, the participants discussed the contours of the proposed collaborative study on Fin-Tech and Financial Inclusion in the SAARC region. A brief discussion amongst the SAARCFINANCE coordinators, led by Smt. Smita Sharma, Director, International Department, concluded the session.

Seminar and Meeting Photos

Seminar on Internal Audit: Emerging Challenges and Effective Practices in Central Banks, March 27-29, 2019, Islamabad, Pakistan

State Bank of Pakistan hosted a seminar on 'Internal Audit: Emerging Challenges and Effective Practices in Central Banks' under the aegis of SAARCFINANCE Forum at National Institute of Banking and Finance, Islamabad during 27-29 March 2019. Besides Pakistan, officials from SAARC central banks of Afghanistan, Bangladesh, Bhutan, Nepal and Sri Lanka participated in the event. Dr. Farooq Arby, SAARCFINANCE Coordinator, State Bank of Pakistan, welcomed the delegates. Mr Qasim Nawaz, Executive Director, SBP formally inaugurated the seminar and in the inaugural session, he stated that business process reengineering was at the core of innovation in banks. While advancements in technology have further transformed the horizon of financial services, these innovations are also raising challenges of their own. Adding further, he stated that the Board and the senior management of State Bank are cognizant of the need to align its internal operations to the changing environment, and to promote innovation in the financial sector in a regulated environment.

On the first day (March 27, 2019) experts, including Mr. Horst Simon, Mr. Zayeem Bin Alam and Syed Sohail Javaad shared their views on various aspects of Internal Audit. Mr. Horst Simon, discussed technological risks faced by business around the world, on the roles and responsibilities to maintain a robust risk management mechanism. Mr. Zayeem discussed the risks of cyber security, social media, data privacy and third party risks and offered an IT auditor's perspective of how to address those risks by discussing controls. Syed Sohail Javaad, shared his views regarding the ongoing developments about digital payments, the benefits of disruptive technologies to regulators, the emerging risks and appropriate responses to them from the perspective of internal audit.

The day concluded with panel discussion on the topic of "Internal Audit as a Trusted Advisor". Panelist, including Mr. Noman Qureshi, , Mr. Horst Simon, Mr. Maraj Mahmood, , Mr. Zayeem Bin Alam and Mr. Mohammad Iqbal Mohasin, discussed the role of internal audit in light of emerging challenges. The second day (March 28, 2019) began with second presentation by Mr. Horst Simon to a joint session of the participant of SAARCFINANCE Seminar and participants of International Central Banking Course in NIBAF. Delegates from the SAARC member central banks also presented their country papers for the information of the audience highlighting their experience s and practices.

Seminar and Meeting Photos

The Second Meeting of Working Group on SAARCFINANCE Database and the SAARCFINANCE Database Seminar, Reserve Bank of India, Jaipur, India, March 22-23, 2018

The Fourth Seminar on the SAARCFINANCE Database, was organised on March 23, 2018 at Reserve Bank of India, Jaipur. The seminar was inaugurated by Mr. M. Rajeshwar Rao, Executive Director, RBI and included a Panel Discussion on Macroprudential and Capital Flow Management Measures and Policies. This was followed by Special Address by Dr V. Ravi, Professor, Institute for Development and Research in Banking Technology on "Use of Big Data Analytics to Strengthen Financial Sector Statistics".

The Second Meeting of Working Group on SAARCFINANCE Database were organised on March 22, 2018. The meeting was attended by members of the Working Group, the SAARCFINANCE Database nodal officer and coordinator/ alternate coordinator of SAARCFINANCE from Central Banks of SAARC countries. The Working Group reviewed the existing Database, its coverage of variables, frequency of data submission and updation, including the data gaps in the database. It also discussed the challenges faced by different central banks, suggestions regarding the nomenclature, definitions and methodology of computations of variables, feasibility of further expanding data coverage across variables. The issues relating to metadata and advance release calendar and the feasibility of moving towards international standardization were also discussed.

Status of SAARCFINANCE Database: Presently there are 194 annual variables, 96 quarterly variables and 65 monthly variables, covering Real Sector, Money and Banking, Public Finance, External Sector, Price Index and Policy Rates, and Financial Markets. The variables are presented in domestic currency, in US dollar terms and also covers rates and ratios. Separate Socio-Economic Indicator at annual frequency are also being reported. Vulnerability indicators were added following the decision taken by the Governors' 34th SAARCFINANCE Group Meeting, held on July 12, 2017. Metadata and Advance Release Calendar for variables have been uploaded.

Seminar and Meeting Photos

"Digital Financial Services and Financial Inclusion in SAARC Countries" at Islamabad, March 19-21, 2018.

The State Bank of Pakistan (SBP) organized a seminar on "Digital Financial Services and Financial Inclusion in SAARC Countries" at National Institute of Banking and Finance (NIBAF) Islamabad during March 19-21, 2018. This was the 13th seminar organized by SBP since 2002 under the banner of SAARCFINANCE. Delegates from Afghanistan, Bangladesh, Nepal and Sri Lanka presented country papers to share their country experience, and initiatives in the subject area. Experts and practitioners in the area of digital financial services shared their views on recent developments, best practices and policy options and the role of central banks and financial institutions.

SBP Deputy Governor Riaz Riazuddin inaugurated seminar by outlining the objectives of SBP's financial inclusion. He highlighted economic benefits of including unbanked into the network of financial services and opportunities relating to digital financial services ecosystem. He emphasized on digital financial services and financial inclusion as a new paradigm of economic growth that plays a crucial role to drive away poverty from the country. Former Governor of SBP, Syed Salim Raza shared his views on evolution of financial services through technological innovations.

Seminar and Meeting Photos

Seminar on Macro Prudential Policies in the SAARC Countries, June 8-9, 2017, Katmandu, Nepal

Macro-prudential policy has been defined primarily as the use of prudential tools to limit systemic risk. A central element in this definition is the notion of systemic risk-the risk of disruptions to the provision of financial services that is caused by an impairment of all or parts of the financial system, and can cause serious negative consequences for the real economy. Systemic risk is generally recognized as having two dimensions: vulnerabilities related to the build-up of risks over time ("time dimension"), and vulnerabilities from interconnectedness and the associated distribution of risk within the financial system at any given point in time ("cross-sectional" or "structural" dimension). In addressing these vulnerabilities, the macro-prudential policy complements the micro-prudential focus on the safety and soundness of financial institutions (Committee on the Global Financial System (CGFS) 2010). By mitigating systemic risks, macro-prudential measures ultimately aim to reduce the frequency and severity of financial crises.

The seminar aimed to enhance a framework of the best practices of macro-prudential policies by sharing the experiences of the SAARC countries. In this regard, the specific objectives of the seminar are:

a. To understand the macro prudential policies implemented in the SAARC region.

b. To review the modalities of policies implemented by the SAARC member countries and;

c. To identify the problems and challenges for formulation and successful implementation of macro-prudential policies.

Seminar Proceedings and Papers

Seminar on Financial Stability, March 27-29, 2017, Islamabad

The State Bank of Pakistan (SBP) organized a seminar on Financial Stability at National Institute of Banking and Finance (NIBAF) Islamabad during March 27 to 29, 2017. This was the 12th seminar organized by SBP since 2002 under the banner of SAARCFINANCE. The objective of the seminar was to conduct a dialogue, share experiences among the seminar participants and bring into light policies and practices prevailing in the member countries relating to financial stability

Delegates from Afghanistan, Bangladesh, Nepal and Sri Lanka presented country papers to share their thoughts, country experiences, policies and measures in the area of financial stability. Different experts shared their views on recent developments, best practices and policy options and the role of central banks and financial institutions.

The seminar was inaugurated by Mr. Riaz Riazuddin, Deputy Governor, SBP, and attended by around 40 mid to senior level officials from the central banks of SAARC member countries, and the Securities and Exchange Commission of Pakistan (SECP).