Urban co-operative banks (UCBs) may be smaller in size, but technology, cyber threats and dependence on external service providers are exposing them to risks that can be much larger than their physical or geographical presence, RBI Deputy Governor Swaminathan J said.

Speaking at the Mission SAKSHAM programme for Directors, Managing Directors and CEOs of UCBs in Telangana, Swaminathan said the growing use of technology in banking has changed the nature of risks faced by smaller banks.

“While the size of a UCB may be limited, the risks it faces may originate far beyond its physical or geographical boundaries. The institution may be small, but the risk environment around it can be much larger,” he said.

Swaminathan also stressed that cyber attackers do not distinguish between large and small banks.

“A cyber attacker does not distinguish between a large bank and a small bank. A digital fraud does not slow down because the bank has fewer branches,” he said.

He said customers today expect banking services to be available quickly and conveniently through digital channels, including fund transfers, payments and access to accounts. Meeting these expectations requires UCBs to strengthen their technology and digital capabilities.

However, smaller UCBs may not have the same resources and specialised manpower available to larger commercial banks to deal with complex cyber threats, digital fraud and technology failures.

The Deputy Governor pointed out that many UCBs depend on outside service providers for critical functions such as Core Banking Solutions, payment applications and data centres.

While outsourcing allows smaller banks to access technology and expertise that could otherwise be difficult or expensive to build themselves, it also creates additional risks, he said.

This raises an important question for bank boards and CEOs, according to Swaminathan: “How much of my bank today actually sits outside my bank?”

He said banks need to understand which systems are operated by external providers and what would happen if a service provider becomes unavailable for a few hours or even a day.

“The service provider may operate the system, but responsibility for understanding the risks, putting appropriate safeguards in place and ensuring continuity of critical services continues to rest with the bank,” he said.

He said smaller UCBs cannot be expected to build every specialised capability internally. Instead, common infrastructure, shared expertise and sector-level arrangements could help them manage their technology and operational challenges.

He also highlighted Mission SAKSHAM, a Reserve Bank initiative launched on April 28 this year to build capabilities across the UCB sector.

The programme aims to cover about 1.4 lakh participants and has separate learning programmes for Board members, senior management, assurance function heads, IT technical employees and other employees.

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