The Reserve Bank of India wishes to reassure the FinTech community that it will continue to encourage and support innovation. At the same time, the central bank expects that the ecosystem will focus on governance, business conduct, regulatory compliance, and risk mitigation frameworks. This was the message delivered by RBI Governor Shaktikanta Das on Tuesday at the Global Fintech Festival.
Das in his address at GFF on its opening day said that the fintech road ahead will witness ever-growing traffic in addition to the large number of existing players who are already there. It is, therefore, imperative that every player on this road follows the traffic rules for his/her own safety and the safety of others.
“The RBI’s focus has always been on encouraging innovation by providing an enabling environment. Simultaneously, as guardian of financial stability, the RBI also remains watchful of any undue risk build-up and responds to them. The fintech players will join us in this endeavor. At the end of the day, sustainability of any fintech activity or business is about enhanced customer protection, better cybersecurity, and resilience, managing financial integrity, and strong data protection,” Das added.
Das also flagged certain concerns regarding the unbridled mushrooming of digital lending apps. He cautioned: “The need of the hour is to ensure assurance of safety after following a process of green-lighting (whitelisting) and due-diligence by the regulated entities. The RBI, in association with other relevant agencies, is taking steps to address this issue and take further steps as may be necessary.”
“Let me emphasize that while innovations are very much welcome, they must be responsible and should enhance the efficiency and resiliency of the financial system while benefitting the consumers. Robust internal product and service assurance frameworks, together with fair and transparent governance, will go a long way to safeguard the interest of customers and ensure the long-term sustainability of the FinTech entities themselves. The level of due diligence and oversight exercised by the regulated entities on their outsourced activities needs to be strengthened further. This would help in the proactive mitigation of risks at the incipient stage itself.
A wave of changes brought in by fintech has had a positive impact in terms of enhancing inclusion and further penetration of financial services. At the same time, these developments have also ushered in an era where an enormous amount of consumer data is being generated and leveraged by a few entities (the so-called BigTechs) by virtue of their huge customer base. Das said: “Therefore, potential risks to public policy objectives of maintaining competition, market and business conduct, operational resilience, data privacy, cybersecurity, and financial stability need closer attention.”
In India, one of the most transformative roles that can be played by fintech is in the area of credit delivery in partnership with traditional lenders, especially in rural and semi-urban areas. Das elaborated: “I am happy to state that the Reserve Bank Innovation Hub has designed an end-to-end digital process for seamless and quick access to rural credit. A pilot
project based on this innovation has been launched in Madhya Pradesh and Tamil Nadu in partnership with the Union Bank of India and the Federal Bank respectively, for both new KCC loans and renewal of such loans up to a threshold (Rs 1.60 lakh) per borrower. Going forward, based on the learnings from the pilot, the digitalization of KCC loans is proposed to be expanded to all districts of these two states as also to other states.”
Fintech, a Force Multiplier
Das marked the theme of his talk as ‘Fintech as a Force Multiplier. “Technology, innovation, and fintech are working in tandem and contributing to the dynamism of the sector. In our journey towards a higher level of sustainable development and financial inclusion these forces morphed into force multipliers,” Das said. He further spoke about the opportunities for enhancing the scope and depth of all that is happening in the fintech sector, as well as the way it can deepen financial inclusion, and enhance and broad-base its footprint in the journey of India towards 2047.