Page 9 - BANKING FINANCE February 2024

RBI CORNER

The governor called for a financial RBI defines 'politically ex- economic and societal benefits, scep-
creditor-led framework for the resolu- tics point to concerns such as increased
tion of stressed assets. "Any amend- posed persons' to comply unemployment and challenges in re-
ments to the IBC and its evolution with FATF norms source reallocation during the transi-
thereof may continue to lay emphasis tion.
The Reserve Bank of India has updated
on a financial creditor-led resolution
Know Your Customer (KYC) norms for Rao outlined specific concerns and ex-
framework, in an overarching manner,"
politically exposed persons (PEPs) who pectations for financial institutions de-
said Das. He added that introducing a transact with regulated entities (REs), ploying AI in their processes and deci-
pre-packaged insolvency resolution pro- seeking to comply with the recommen- sion-making. These include biases, ro-
cess (PPIRP) for corporate debtors could
dations of intergovernmental bustness issues, data privacy,
be a game changer given the challenges
organisation Financial Action Task cybersecurity, consumer protection,
in out-of-court settlements. The PPIRP
Force (FATF), and maintaining financial stability. He
envisages creditors agreeing on a reso-
lution process beforehand and imple- PEPs are individuals entrusted with added that AI inherits biases and errors
menting it through insolvency. prominent public functions by a for- from its training data, making regular
eign country, including the heads of fairness audits essential. He high-
RBI proposes to introduce states/governments, senior politicians, lighted the challenge of AI models be-
senior government or judicial or mili- ing black boxes, making them difficult
new category of money tary officers, senior executives of state- to decode for audit and supervisory
changers owned corporations and important reviews.

The Reserve Bank of India proposed political party officials, said the RBI.
draft norms aimed at rationalising the This change is expected to provide No minimum balance
authorisation of money changers in more clarity to undertake Customer charges on 'inoperative A/
view of the widespread availability of Due Diligence (CDD), said the RBI in a cs': RBI
banking services to the public and to communication to REs.
explore alternative models for facilitat- REs have the option of establishing a The RBI has said that banks cannot
ing foreign exchange-related services. impose a penalty for not maintaining
relationship with PEPs (whether as cus-
The authorisation framework under tomer or beneficial owner). REs have minimum balance on accounts that are
the Foreign Exchange Management to perform the regular customer due inoperative - those that have not re-
Act (FEMA) was last reviewed in March diligence and also follow additional corded any transaction for over two
2006. conditions prescribed by the RBI to years. It also added that banks cannot
classify accounts created for receiving
"The RBI has reviewed the extant transact with PEPs.
scholarship money or direct benefit
authorisation framework under FEMA transfers as inoperative even if they
with an objective to further improve RBI draws up checklist for have not been used for over two years.
the ease with which foreign exchange AI tech in banking
transactions can be undertaken by us- The directive to banks are a part of
RBI deputy governor Rajeshwar Rao RBI's new circular on inoperative ac-
ers, and at the same time, strengthen
has raised concerns over issue relating
the regulatory oversight/framework counts - and part of its efforts to bring
governing authorised persons (APs)," to fairness, transparency and gover- down the level of unclaimed bank de-
the draft norms stated. nance in the use of artificial intelli- posits. The new rules come into effect
gence in banking. from April 1.
This is in view of the accelerated uni-
versal reach of financial services due to Speaking at the 106th annual confer- "These instructions are expected to
financial inclusion initiatives, increasing ence of Indian Economic Association in complement the ongoing efforts and
integration of the Indian economy with Delhi recently, Rao said that despite initiatives taken by banks and RBI to
the global economy, digitisation of pay- the transformative potential of GenAI, reduce the quantum of unclaimed de-
ment systems, evolving institutional there are potential impacts on produc- posits in the banking system and return
structure, etc., over the past two de- tivity, jobs, and income distribution. such deposits to their rightful owners/
cades, the norms stated. While proponents expect widespread claimants," RBI said in its circular.

8 | 2024 | FEBRUARY | BANKING FINANCE