The Reserve Financial institution of India (RBI) just isn’t in favour of current banks launching digital-only banks because the mannequin carries some dangers, Governor Shaktikanta Das mentioned on Friday. The central financial institution has chosen to not settle for ideas on such preparations, he added.
“We don’t have a separate regulatory framework for what is named a digital financial institution,” Das mentioned, talking at financialexpress.com’s Trendy BFSI Summit. “I really feel there is no such thing as a want for any financial institution to arrange a separate digital financial institution, to have a kind of parallel entity in the identical enterprise. What they’ll obtain by having a parallel entity they’ll very effectively obtain as part of their very own organisation. There have been some ideas which got here, however we felt that it carries sure dangers with it. So now we have not accepted that in the intervening time.”
In November 2021, Niti Aayog had floated a dialogue paper providing a roadmap for a regime for licensing and regulation of digital banks in India. The paper had prompted giant banks to start out devising plans to construct digital banks of their very own in readiness for a licensing regime.
On the rising presence of huge expertise firms, or Massive Tech, within the monetary providers house, Das mentioned this poses dangers round competitors and information safety. The regulator is, subsequently, working to evolve an acceptable method to regulating fintechs, which might be activity-based, entity-based, outcome-based or a mixture of all three, he added.
Massive Tech firms with a non-financial background which have entered the monetary providers house may probably be a supply of disruption to the monetary system, the governor mentioned. “As you’d remember, such firms, whether or not from e-commerce, social media and search engine platforms, trip hailing and comparable companies have began to supply monetary providers in an enormous method on their very own or on behalf of others,” Das mentioned. These firms have an unlimited quantity of buyer information which has helped them to supply tailor-made monetary providers to entities and people missing credit score historical past or collateral.
The governor took challenge with the pattern of banks and different conventional lenders utilising platforms offered by fintech firms of their inner processes for credit score threat evaluation. “Such giant scale use of recent methodologies in credit score threat evaluation can create systemic issues like over-leverage, insufficient credit score evaluation and so forth,” Das mentioned, including that authorities and regulators must strike a effective steadiness between enabling innovation and stopping systemic dangers.
Massive Tech additionally poses issues associated to competitors, information safety, information sharing and operational resilience of vital providers in conditions the place banks and non-banking monetary providers (NBFCs) utilise the providers of such tech firms. These issues may even materialise in sectors apart from monetary providers, Das mentioned.
“The availability of economic providers by means of the digital channel, together with lending by means of on-line platforms and cell apps, have introduced in points regarding unfair practices, information privateness, documentation, transparency, conduct, breach of licensing circumstances, and so forth,” Das mentioned, including that the RBI will quickly challenge appropriate pointers and measures to make the digital lending ecosystem protected and sound whereas enhancing buyer safety and inspiring innovation.
The regulator’s method to Massive Tech regulation is to intently watch the phrases of partnerships between banks, NBFCs and fintechs, as there have to be dos and don’ts with regard to what regulated entities can and can’t outsource to fintechs.
Whereas making a case for higher administration of dangers by fintechs, Das noticed that the RBI doesn’t wish to stifle innovation within the early phases of growth of an ecosystem like Purchase Now, Pay Later (BNPL). “Our job as a regulator is to maintain assessing what sort of leverage is being constructed up within the system and if it’ll pose a problem on the systemic stage. We watch very clearly what sort of BNPL merchandise the key gamers are providing and what sort of leverage they’re build up,” Das mentioned, including, “As and when required, we are going to give you pointers, however at a really incipient stage, we should always not intrude and kill some new enterprise strategies or fashions.”