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Mumbai: The Reserve Bank on Monday made a case for adopting risk-based supervision, zero-trust approaches and AI-aware defense strategies to tackle online frauds and boost cybersecurity resilience in the financial sector.

The central bank flagged that phishing and social engineering attacks are evolving through generative AI-powered methods, such as deepfakes and contextual frauds.

“The expanding scale of digital financial services, cloud-based infrastructure and interconnected systems across sectors has exponentially increased the cyberattack surface,” said the RBI’s bi-annual the Financial Stability Report (FSR).

It further said given the systemic interconnectedness of financial entities and technology service providers, ensuring cyber resilience is critical to maintaining trust, stability and business continuity.

As organisations increasingly depend on third party service providers for their business operations, vulnerabilities in the supply chain could pose systemic risk.

Furthermore, the RBI said the overreliance on a few major IT and cloud service providers has created dependency and vendor lock-in problems leading to concentration risks.

Vulnerability in one system can quickly propagate across networks, affecting multiple entities, the report said.

“In this context, cybersecurity resilience will depend on the Security Operations Center (SOC) efficacy, risk-based supervision, zero-trust approaches and AI-aware defence strategies,” it said.

Graded monitoring mechanisms, the use of behavioral analytics for threat detection, hands-on training, continuous learning and simulation-based exercises such as through Continuous Assessment-Based Red Teaming (CART), scenario-based resilience drills and uniform incident reporting frameworks are vital for enhancing the resilience of the digital ecosystem, it said.

The Financial Stability Report (FSR) reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system and risks to financial stability.

The RBI also said regulators are aligned with these efforts, focusing on digital fraud prevention, secure digital lending, and mutual fund reforms.

The FSDC and its sub-committee continues to play a vital role in building a resilient and secure financial system.

The report further said the rapid growth of digital transactions, though instrumental in enhancing convenience and efficiency, has been accompanied by a significant rise in financial frauds.