The Evolving Landscape of Customer Data Privacy in Indian Banking

The digital age has transformed the banking sector, placing customer data at the heart of its operations. Consumers today are increasingly aware of their data privacy rights and demand greater control over its usage.

High-profile data breaches and growing regulatory scrutiny have fueled this awareness. Privacy regulations across the globe, such as India's recently enacted Digital Personal Data Protection Act (DPDPA), further solidify these expectations. In the future, the banks prioritizing customer privacy will be better positioned to attract and retain loyal customers in a competitive market.

Understanding the DPDPA and its implications

The DPDPA classifies banks as "significant data fiduciaries," subjecting them to stringent compliance requirements. These requirements extend beyond internal data management to encompass the entire data ecosystem, including service providers and third-party partners. Among other facets, the regulation focuses on the following key areas:

• Data classification, purpose limitation, and minimization of data collection: Banks must categorize data based on its purpose and sensitivity for appropriate protection. Data collection must be limited to what is necessary to fulfil legitimate business objectives. The principle of minimizing data collection, along with data anonymization techniques where appropriate, can significantly reduce the attack surface and minimize privacy risks.
• Data breach notification: Prompt notification to authorities and affected customers is mandatory in case of breaches. This necessitates robust incident response plans and clear communication protocols.
• Consent management: Customers must be informed about how their data is used, with clear opt-in and opt-out options as well features for withdrawal of consent and to object/restrict processing of their data.
• Customer complaints: Efficient processes must address customer grievances regarding data privacy concerns, requiring complaint redressal mechanisms.
• Data governance: Annual audits and robust data governance structures, such as appointing a Data Protection Officer (DPO) and implementing data protection impact assessments (DPIAs) for high-risk processing activities.
• Third-party management: Stringent contracting processes with sufficient liability limits and clear penalties are necessary for data sharing with service providers. Banks are ultimately accountable for data breaches throughout the data lifecycle, even if they occur at a third-party partner.
• Data retention: Banks must define timelines for data retention based on purpose and legal requirements. 
• Privacy risk assessments: Regular assessments help identify and mitigate potential privacy risks. These assessments should be comprehensive, encompassing technological vulnerabilities, human error, and insider threats.

The uniqueness of India's privacy framework

Compared to regulations like the EU’s GDPR, the DPDPA is distinct. For instance, the DPDPA:

• Focuses primarily on digitized data, although interpretations regarding anonymized or non-personal data remain to be clarified.
• Considers the 'consent mechanism' as the major basis of data collection and the legal basis of data processing.
• Imposes fines on both data fiduciaries (banks) and data principals (customers) for negligence, although the specific criteria for determining negligence are yet to be defined.
• Levies hefty penalties on banks for non-compliance, ranging from ₹50 crore to ₹250 crore. This underscores the seriousness with which the Indian government views data privacy protection.
• Emphasizes whitelisting for cross-border data transfer which may necessitate strategic partnerships with service providers in whitelisted countries to ensure uninterrupted data flows.
• Upholds existing high technical and process control standards in the banking sector, established through regulations from the Reserve Bank of India (RBI) and other financial regulatory bodies.
• Holds banks solely accountable for privacy breaches throughout the data lifecycle, even if they occur at a third-party partner. 

Achieving compliance through "Privacy by Design"

A structured approach built on "Privacy by Design" (PbD) is key to achieving and maintaining compliance with the DPDPA. PbD encompasses two key strategies:

Process: Focusing on enforcing, demonstrating, informing, and controlling data access through robust processes. It includes implementing user access controls, audit trails, and data encryption practices. Additionally, it necessitates training employees on data privacy principles and best practices.

Data: Focusing on separating, minimizing, hiding, and abstracting data to minimize exposure and vulnerability. Data minimization techniques, pseudonymization, and anonymization (where appropriate) can significantly reduce the risk of data breaches and unauthorized access.

Lessons from data breaches and the path forward

Data breaches are a reality in the digital age. However, implementing multi-factor authentication (MFA) for user access, adopting a zero-trust security architecture that verifies every request, and utilizing purpose-based access controls can significantly strengthen security postures. Banks can take additional measures like deploying data loss prevention (DLP) solutions to monitor and prevent unauthorized data transfers and implementing stricter third-party risk management practices through enhanced due diligence and contractual obligations.

Authored by K R Venkatraman, VP & Head of Product Architecture, Infosys Finacle