Digital Transformation in Finance: A Double-Edged Sword

MUMBAI: The rapid digitalisation of investments and credit is presenting fresh challenges for monetary authorities, according to RBI Deputy Governor Michael Patra. Speaking at a conference hosted by the Maldives Monetary Authority, Patra highlighted the potential disruptions to traditional monetary policy transmission and the need for vigilance against household debt escalation.

The deputy governor emphasized that the shift towards digital platforms for savings and investments, such as online brokerage accounts and robo-advisers, has made financial decisions faster and more informed. However, this convenience comes with the risk of increased debt and financial instability at the household level.

Patra also noted the influence of digitalisation on borrowing patterns, where fintech companies are providing easier access to digital loans. This has been facilitated by the reduction of information asymmetries through various digital sources, including tax returns, electronic toll collection, and bill payments. The rapid advancement in information and communication technology is further accelerating the 'space-time flow' of capital, allowing it to move faster and grow larger.