Reserve Bank of India Deputy Governor Swaminathan J. delivered a comprehensive framework for digital banking supervision at the third annual global conference of RBI's College of Supervisors in Mumbai. Speaking to banks and regulated entities, he emphasized that supervision in the digital era will be significantly less tolerant of episodic compliance, outsourced accountability, and opaque algorithms as the banking sector becomes more digital, interconnected, and fast-moving.

Continuous Compliance Framework

The first critical expectation centers on transforming compliance from a periodic exercise to a continuous operational discipline. Swaminathan cautioned banks against treating compliance as a quarter-end formality, arguing that faster business and risk cycles in digital banking demand year-round strong data governance and operational discipline.

In digital systems where risks can materialize within hours, supervisors will increasingly evaluate institutions based on their ability to quickly explain anomalies and implement corrective measures. The capacity for decisive response will be viewed as an indicator of control maturity rather than merely administrative compliance.

Third-Party Risk Management

The second pillar addresses the growing vulnerability associated with third-party arrangements as banks increasingly depend on cloud providers, fintech partners, and technology vendors. Swaminathan emphasized that institutions require enhanced oversight of partners, clearer accountability frameworks for incidents, and contracts supporting audit access and operational resilience.

The deputy governor stressed that regulated entities cannot outsource their fundamental responsibility, emphasizing that third-party management must be treated as core risk management. The cross-border operational nature of many global providers adds complexity, as incidents transcend jurisdictional boundaries. He referenced the July 2024 global IT outage caused by CrowdStrike's faulty software update, which affected approximately 8.50 million Microsoft Windows systems worldwide, demonstrating how third-party incidents can rapidly transmit disruption at scale to well-managed institutions.

Artificial Intelligence Governance

The third expectation addresses the expanding deployment of artificial intelligence and analytics across banking functions, from credit underwriting to fraud detection systems. As these technological tools become more deeply embedded in banking operations, Swaminathan warned that banks should prepare for intensive supervisory scrutiny regarding model risk, explainability, and fairness considerations.

Two specific issues require particular attention:

• Vendor Model Reliance: Institutions using outputs without fully understanding underlying algorithmic engines
• Fairness and Exclusion: Data proxies producing seemingly efficient outcomes that may be ethically unacceptable

The deputy governor emphasized that governance frameworks enable innovation to scale safely, highlighting the critical balance between technological advancement and regulatory compliance. Banks must ensure their AI systems maintain transparency and fairness while delivering operational efficiency.

Supervisory Evolution

The comprehensive framework reflects RBI's recognition that traditional supervisory approaches require fundamental adaptation for the digital banking landscape. The emphasis on real-time monitoring, continuous compliance, and transparent governance structures signals a significant shift in regulatory expectations. Financial institutions must now demonstrate not only compliance with existing regulations but also proactive risk management capabilities that match the speed and complexity of digital banking operations.

These supervisory standards represent the central bank's commitment to maintaining financial stability while enabling technological innovation in India's rapidly evolving banking sector.

The bond market opened on a positive note today, with government securities trading firmer amid supportive policy measures and eased supply concerns. Market sentiment has improved significantly, driven by key developments in both government and corporate bond segments.

RBI Support Strengthens Government Bond Market

The Reserve Bank of India's ₹500 billion open market operation has provided substantial support to bond prices over the past week. This policy intervention has been widely discussed by market participants and continues to underpin the positive sentiment in government securities.

Additionally, reduced state government borrowing has further supported bond prices. The following table shows the significant reduction in planned state borrowings:

This lower-than-expected supply has eased market concerns and contributed to the firmer tone in government bonds.

PFC Launches Landmark ₹50 Billion NCD Issue

The corporate bond space is witnessing significant activity with Power Finance Corporation's launch of its non-convertible debentures public issue. The company aims to raise ₹50 billion through this offering, which represents the largest retail bond issue in nearly eight years if fully subscribed.

The issue details are structured as follows:

PFC is offering bonds across multiple maturity periods with attractive yields:

The issue has generated strong investor interest, reflecting the appetite for corporate bonds in the current market environment.

Regulatory Developments Support Market Outlook

SEBI is examining the possibility of introducing trading in bond derivatives, aimed at deepening India's corporate bond market. This regulatory initiative follows NITI Aayog's detailed report suggesting several measures to strengthen and expand the corporate bond ecosystem.

These developments indicate a comprehensive approach toward enhancing the bond market infrastructure and providing more investment avenues for market participants.

Market Focus on Inflation Data

Markets are closely monitoring India's consumer price inflation data, scheduled for release at 4 pm today (January 12). The CPI data is expected to influence both bond market movements and rupee performance in the near term, as investors assess the inflation trajectory and its implications for monetary policy.