“There is no proposal on neo-banks or digital banks because we feel that the existing banks and NBFCs can adopt more and more technology for delivery of banking services.” said Shaktikanta Das while delivering a speech at the Financial Express Modern BFSI Summit in Mumbai on June 17, 2022.”The theme of my address “Disruptions & Opportunities in the Financial Sector will resonate in the current context of technological innovations and fast-evolving business models in the financial sector” he said in his inaugural words.
We had received suggestions on the digital bank, but we felt that the idea came with certain risks with it. So we have, therefore, not accepted it at the moment,” he said. He also said that there was no proposal at the moment to regulate neo-banks and called for existing banks and non-banks to use technology for financial service delivery. The Governor’s above response was in connection to the government think-tank Niti Aayog’s proposal in November 2021 for setting up of digital-only banks that would completely rely on digital platforms without any physical presence. The Governor said that we had received suggestions on the digital bank, but we felt that the idea came with certain risks with it. So we have, therefore, not accepted it at the moment”.
“Over the past few years, the business of banking has witnessed a shift from traditional branch banking to digital banking. This paradigm shift has been possible due to innovations in information technology (IT), growth in mobile and internet connectivity, market-based financial intermediation, and the advent of Fintech, he said. Financial service providers are now devising new products and services and are adopting new business models for reaching out to the target customers”. However, he also said that there was no proposal at the moment to regulate neo-banks and called for existing banks and non-banks to use technology for financial service delivery.
Alongside technological advancements like UPI, aadhar enabled DBT, etc., the Reserve Bank’s regulatory approach has been realigned to support and foster such innovations. The regulatory guidelines for account aggregators and peer-to-peer lending operators are indicative of a proactive regulatory approach, he said. The Reserve Bank Innovation Hub (RBIH) has also been set up by the RBI to catalyse innovations in the Fintech sector. “We are now moving towards the introduction of a central bank digital currency (CBDC)”, he added.
In respect of players involved in distributing buy-now-pay-later products, he said that RBI wasn’t keen to regulate it just yet, but they are keeping a close eye on these players. “Buy-Now-Pay-Later which is offered by several e-commerce companies is a lending activity, but we have to be careful and calibrated in our approach and not start interfering everywhere,” the governor said. “If an e-commerce player is given an opportunity of BNPL let him carry on with that business. Our responsibility is to keep assessing the kind of leverage that is building up in the total system and will it pose a systemic level risk. Eventually, if a real sector business fails it impacts the banking sector. We are studying the segment, as and when it’s required we will come out with guidelines. “as also said that the entry of big tech into the financial sector poses concerns that need to be assessed” Mr.Das said. The governor said that today companies from social media, e-commerce, search engines, and ride-hailing companies have started offering financial services on their own or on behalf of others like banks and NBFCs. These companies have an enormous amount of data which has helped them offer tailored financial services to entities or individuals lacking credit history or collateral,” he said. Even lenders are sometimes using these platforms provided by fintech companies in their internal credit assessment. Such large-scale use of new credit assessment methods can create systemic concerns like over-leverage and inadequate credit assessment”, he added.