The Reserve Bank of India (RBI) isn’t in favour of present banks launching digital-only banks because the mannequin carries some dangers, Governor Shaktikanta Das stated on Friday. The central financial institution has chosen to not settle for solutions on such preparations, he added.
“We don’t have a separate regulatory framework for what is called a digital bank,” Das stated, talking at financialexpress.com’s Modern BFSI Summit. “I feel there is no need for any bank to set up a separate digital bank, to have a sort of parallel entity in the same business. What they can achieve by having a parallel entity they can very well achieve as a part of their own organisation. There were some suggestions which came, but we felt that it carries certain risks with it. So we have not accepted that at the moment.”
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 massive 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 know-how firms, or Big Tech, within the monetary providers area, Das stated this poses dangers round competitors and knowledge safety. The regulator is, subsequently, working to evolve an acceptable strategy to regulating fintechs, which could possibly be activity-based, entity-based, outcome-based or a mixture of all three, he added.
Big Tech firms with a non-financial background which have entered the monetary providers area might probably be a supply of disruption to the monetary system, the governor stated. “As you would be aware, such companies, whether from e-commerce, social media and search engine platforms, ride hailing and similar businesses have started to offer financial services in a big way on their own or on behalf of others,” Das stated. These firms have an infinite quantity of buyer knowledge which has helped them to supply tailor-made monetary providers to entities and people missing credit score historical past or collateral.
The governor took problem with the development of banks and different conventional lenders utilising platforms offered by fintech firms of their inside processes for credit score threat evaluation. “Such large scale use of new methodologies in credit risk assessment can create systemic concerns like over-leverage, inadequate credit assessment etc,” Das stated, including that authorities and regulators should strike a fantastic steadiness between enabling innovation and stopping systemic dangers.
Big Tech additionally poses considerations associated to competitors, knowledge safety, knowledge sharing and operational resilience of crucial providers in conditions the place banks and non-banking monetary providers (NBFCs) utilise the providers of such tech firms. These considerations might even materialise in sectors aside from monetary providers, Das stated.
“The provision of financial services through the digital channel, including lending through online platforms and mobile apps, have brought in issues relating to unfair practices, data privacy, documentation, transparency, conduct, breach of licensing conditions, etc,” Das stated, including that the RBI will quickly problem appropriate tips and measures to make the digital lending ecosystem secure and sound whereas enhancing buyer safety and inspiring innovation.
The regulator’s strategy to Big Tech regulation is to carefully watch the phrases of partnerships between banks, NBFCs and fintechs, as there should be dos and don’ts with regard to what regulated entities can and can’t outsource to fintechs.
While making a case for higher administration of dangers by fintechs, Das noticed that the RBI doesn’t wish to stifle innovation within the early levels of growth of an ecosystem like Buy Now, Pay Later (BNPL). “Our job as a regulator is to keep assessing what kind of leverage is being built up in the system and if it will pose a challenge at the systemic level. We watch very clearly what kind of BNPL products the major players are offering and what kind of leverage they are building up,” Das stated, including, “As and when required, we will come up with guidelines, but at a very incipient stage, we should not interfere and kill some new business methods or models.”
Source: www.financialexpress.com”