The impact of covid-19 pandemic, ongoing geopolitical crisis, and all pervasive technological innovations sweeping across economies are challenging the traditional financial intermediation processes like banks, NBFCs and housing finance companies, said Reserve Bank of India Governor Shaktikanta Das is his inaugural address at the FE Modern BFSI Summit today (17 June). The banking paradigm is undergoing major change as the core functions of a financial sector namely intermediation, asset price discovery, risk transfer and payments are globally undergoing a process of transformation, driven by technological advancement, he added. Business of banking has witnessed a shift from traditional branch banking to digital banking due to innovations in Information Technology, growth in mobile and internet connectively, market-based financial intermediation and advent of fintech.
‘Digital mobile anytime, anywhere’ banking is becoming the order of the day. Indigenously developed UPI and Aadhaar enabled payment services have become the backbone of retail payment system. Along these developments, the Reserve Bank’s regulatory approach has been aligned to support and foster such development, Das added.
Talking about regulatory framework amid evolving technology, Das said Blockchain Technology transcends regulatory and national boundaries. Different blockchain platforms cannot be limited to a regulator or a nation. India has traditionally followed a hybrid form of regulation that combines activity and entity-based regulations, the RBI Guv stated. Das said that another example in this case would be Decentralised Finance or DeFi which poses unique challenges to the regulators as its anonymity, lack of a centralised governance body, and legal uncertainties can make the traditional approach to the regulation somewhat ineffective.
“As a principle, the Reserve Bank has been applying comprehensive regulatory, supervisory and oversight requirements to various segments of the financial sector in its domain to create an enabling ecosystem for such activities to grow in an orderly fashion. Going forward, the central bank will continue to finetune its regulatory and supervisory measures keeping in mind the evolving dynamics of the financial sector,” Das added.
Separately, Das said that harsh recovery methods used by a few lenders is a serious area of concern for the central bank. He mentioned how certain regulated, as well as unregulated entities use unacceptable recovery methods without having adequate checks and controls over their recovery agents. He stressed that such kind of actions by recovery agents are “unacceptable” and pose reputational risk for financial entities themselves. The RBI governor said, “We have taken serious note of such instances and will not hesitate to action against such errant regulated entities.”