Banks may be vulnerable to strong inertia in adapting new technology: RBI DG Rabi Sankar

Reserve Bank of India Deputy Governor T. Rabi Sankar | Photo credit:

“There is a general realization that new fintech players, especially because they did not have legacy systems that had restricted them, were much more agile and innovative than the established banks. While this did not undermine the role of banks as such, it did expose the Achilles heel of the banking system: that banks can be vulnerable to strong inertia in adapting to new technology,” Sankar said.

Sankar said that while UPI payments are ultimately processed through a bank’s server, the first name that comes to every UPI user’s mind while making a payment is that of the third-party payment apps such as Paytm, PhonePe or Google Pay. The acquisition of customers and their payment information was enough incentive for these app providers to expand these services even in the absence of direct revenue, he said.

More importantly, fintechs had certain advantages over banks. They didn’t have legacy IT systems, which allowed them to use technologies that were easier to scale, integrate and upgrade. Banks, meanwhile, with their core banking system, found it relatively more difficult to modernize and upgrade. With few assets on the balance sheet, no physical locations and little due diligence, fintechs also faced lower operating costs.

“… It can be reasonably argued that banks have been unfairly disadvantaged. Higher regulatory burden, the friction of the KYC process and AML checks and so on. In a perfectly competitive market, banks would probably have recouped their higher costs from these fintechs. But then the adoption of new technology would likely have suffered. But even without these disadvantages that banks faced, it is reasonable to assume that they did not foresee the potential in UPI that fintechs did…” said Sankar.

technical infrastructure

He said lenders need to focus on upgrading their tech infrastructure and making it less monolithic and rigid to compete with the fintech ecosystem. The DG said competitiveness may no longer depend so much on balance sheet strength as on data capacity and technological flexibility in the future.

Published on November 7, 2025