Protection of personal data should be backed by a legal provision as it will help ensure privacy and confidentiality of individuals, a senior RBI official said on Tuesday.
Data protection is crucial because privacy and confidentiality of individuals is their right under the Constitution, RBI Executive Director T Rabi Sankar said. "I strongly believe that the protection of use of proprietary data, in particular personal data, needs to be legally provided for rather than through subordinate legislation like regulation through regulatory authority," Sankar said.
He was addressing the virtual event 'RAISE 2020 : Responsible AI for Social Empowerment'. The government is looking to table the Personal Data Protection Bill in the Budget session of Parliament next year. The bill proposes to put restriction on use of personal data without explicit consent of citizens.
Speaking on artificial intelligence (AI), Sankar said the massive generation of data and the unimaginable use of computing power have given a huge fillip to AI in the last decade. Computers can make certain decisions based on programming and this has come into the area of banking as well, he pointed out.
"In terms of customer service we have also done something in fraud detection. We have recently issued some instructions on positive pay in the cheque truncation system (CTS)...to avoid any possibility of frauds... "As the system gets more popular and software develops more, it will be easy to identify misuse of the cheque truncation system and probably may at some point of time minimise it to insignificant level...," Sankar said. Similarly, data can be used to check money laundering as it will help in identifying the trends in movement of money.
Among others, robo-advisory services too have huge potential for data usage, he said. "Similarly for credit assessment, this would improve credit assessment of borrowers to the extent that one can envisage going forward at some point of time in future that the credit risk premium that adds to the cost of borrowing can be minimised.
It will have a secular impact on bringing borrowing cost down," said the RBI official. Apart from the CTS, there are other areas such as the Central Payment Fraud Information Registry that the Reserve Bank has put in place, he added. "We are looking at this as, once data is collected over a period of time, it would eventually enable prevention, reduction and early detection of fraudulent transactions in the financial system," Sankar said.
Speaking about the challenges of managing the huge amount of data, he said, "We have to keep in mind that there should be a law rather than regulation for protection of data of an individual. Second point is that the regulation is evolving, eventually going forward we will have to look at how to ensure a properly regulated framework that is backed by a very robust legal system."
Speaking at the event, Ashutosh Chadha, VP and Head - Public Policy and Government Affairs, South Asia, Mastercard, said building trust is very crucial for financial systems and this calls for a robust data governance system. "We are working on the creation of a Mastercard farmer network. This is based on their past history of buying and selling, which further creates credit history and digital identities. All these help them in getting future credit," Chadha said.