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Thou shalt not…

Thou shalt not…

In recent times, India’s banking regulator Reserve Bank of India (RBI) has issued a series of notices prohibiting regulated entities from certain actions. The most notable is Paytm Payments Bank being prohibited from most transactions and Visa being prohibited to do business-to-business card payments through third party fintech firms. Earlier Bank of Baroda was prohibited from onboarding customers to its bob World app. Even earlier RBI prohibited banks from extending any service to businesses engaged in cryptocurrencies, barred SBM India from all transactions under LRS, and many more such actions. In the latest move, RBI asked Federal Bank and South Indian Bank to stop issuing new co-branded credit cards with fintech partnership. KYC & AML – weaknesses in these two areas are the most common factors that have attracted RBI’s response.

All these are examples of ‘Thou shalt not’. Some are thundering, some are softer.

Apart from such tightening, RBI has imposed and continues to impose softer controls in the form of financial penalties on various banks and financial organizations. That hardly makes news now-a-days. It is the ‘Thou shalt not’ kind of edicts that catch more attention and generate more chatter, and fear in those targeted.

Some prefer that RBI should be less strident in its prohibitory actions, in order not to discourage innovators, and consequently, innovations. If one looks at RBI’s actions on innovation, it is taking many steps forward and extending a helping hand to innovators in various ways, such as enabling sandboxes, throwing open issues for public discussion, and more. Fintechs would obviously like to have more of support and less of restrictions. But the laws of nature are clear – rose and thorns necessarily go hand in hand.

In mythology and religion, Gods are all knowing and nothing can be hidden from them. Regulators too are increasingly knowing more and more, and what can be hidden from them is shrinking further and further. And this is a good guideline for all financial businesses to plan their conduct in the days ahead.

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