Entities engaged in the financial sector must stick to what they have been licensed to do and venturing into businesses beyond that will entail seeking the relevant licences, Reserve Bank of India (RBI) governor Shaktikanta Das said on Friday.
“Our responsibility is to maintain financial stability. The firms should operate under the licences granted to them. If they are doing anything beyond that, then they should seek our permission. Without permission, if they are engaging in activities for which they have no licence, it is not acceptable,” Das said on the sidelines of a banking conclave organised by Bank of Baroda (BoB).
Unlicensed activity could lead to a risk build-up and the RBI cannot allow that, Das said. The governor’s remarks assume significance in light of the RBI’s June 20 letter to some prepaid payment instrument (PPI) issuers barring them from loading PPIs with credit lines. The diktat has come as a blow to digital lenders, especially those engaged in buy now, pay later (BNPL), compelling them to stop on-boarding customers through prepaid cards.
Das on Friday said guidelines for digital lending will be issued within the next few weeks and they have been delayed due to complexities involved. “It has taken more time than we had initially presumed, but the situation is so complex,” he said, adding that the RBI is trying to balance the twin priorities of supporting innovation and maintaining financial stability.
“We want to support innovation and at the same time we want the entire ecosystem to grow in an orderly and regulated manner so that there is no compromise on financial stability,” the RBI governor said.
Following a furore over the excesses committed by digital lending apps in 2020, the RBI had set up a working group to prepare a report on regulating such apps. The recommendations of the group, released in November 2021, range from subjecting digital lending apps to a verification process by a nodal agency to dedicated legislation to prevent illegal digital lending activities.
The RBI has repeatedly spoken against increasing presence of BigTechs in the Indian financial sector. The latest instance was the June 2022 edition of the financial stability report, where the central bank said as large technology companies scale up and turn into “too critical to fail” institutions, regulators must be mindful of their interlinkages with the financial system.