Synopsis: The financial sector is undergoing a significant digital transformation, driven by automation and AI, which is reshaping job ratios and skill requirements. RBI Governor Shaktikanta Das stresses the need for upskilling to meet these challenges.
The financial sector is experiencing profound changes driven by advancements in digital technology.
Automation is replacing traditional clerical roles, significantly impacting job ratios and skill requirements.
This digital transformation is reshaping the landscape of banking and financial services in India.
Impact of Automation on Jobs:
Since the onset of the digital decade, automation has increasingly replaced clerical work, resulting in a decline in middle and lower-end jobs.
This shift has altered the ratio of officers to support staff, from 50:50 in FY11 to 74:26 in FY23.
The rise of AI is anticipated to further disrupt job availability in the sector, exacerbating these trends.
RBI Governor's Perspective:
RBI Governor Shaktikanta Das has highlighted the challenges posed by digital channels in his foreword to the central bank's Report on Currency and Finance.
He emphasized the necessity for financial institutions to invest in upskilling and reskilling their staff to cope with the demands of digitalization.
"Digitalisation is decentralising financial labour through outsourcing and telework. Automation replacing labour can potentially widen the gap between capital and labour returns, creating a fragmented labour market with low-skill/low-pay and high-skill/high-pay jobs, while middle-tier jobs are displaced by technology," Das said.
Global Trends and Indian Context:
The report identified a global trend from 2013 to 2019, where the number of support roles in the financial sector decreased, while the number of professionals and technicians increased.
This trend is also evident in India.
Additionally, the report noted a turnover rate exceeding 30% in private banks in FY23 due to hiring via digital platforms.
The rising importance of AI-related skills in the labor market in India is reflected in the growth of AI talent recruitment relative to overall recruitment in 2023, which stands at 16.8%.
Challenges of Upskilling:
Despite the emphasis on upskilling, the RBI pointed out that traditional learning and development methods are insufficient for the current technological transformation.
Substantial investments are needed to develop the required skills.
In 2023, concerns were raised by the central bank after top private banks revealed that nearly a third of their staff had to be replaced due to high turnover rates, particularly among frontline field staff.
Growth of the Digital Economy:
India is at the forefront of the digital revolution, with the Indian digital economy expected to constitute 20% of GDP by 2026, up from the current 10%.
Das remarked that digitalization is paving the way for the next generation of banking, improving access to financial services at more affordable costs.
"Digitalisation is paving the way for next-gen banking and improving access to financial services at affordable costs," Das added.
Cybersecurity Concerns:
Another significant concern is the escalating cost of data breaches in India, which has surged by 28% to reach $2 million between FY20 and FY23.
Cyber risks, particularly phishing attacks and compromised credentials, remain highly prevalent.
Phishing attacks account for 22% of cyber risks, while stolen or compromised credentials make up 16%, according to the report.
In conclusion, the financial sector must navigate these challenges by adapting to digitalization, investing in upskilling, and addressing cybersecurity threats.
While the digital transformation presents significant opportunities for growth and efficiency, it also requires a proactive approach to manage its impact on the workforce and to safeguard against emerging risks.
Disclaimer: We provide stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
