Digital-only banks? No, says RBI governor

A proposal of full-fledged digital-only banks has been declined “as they pose risks to the system”, Reserve Bank of India Governor Shaktikanta Das hinted today. Das, who was speaking at an event in the financial capital 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.

“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,” the RBI governor said. He said that the entry of big tech into the financial sector posed concerns that need to be said. “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.”

Last year in November, government think-tank Niti Aayog had proposed setting up digital-only banks that would completely rely on digital platforms without any physical presence.

While the RBI was keeping a close eye on the players involved in distributing buy-now-pay-later products, the central bank’s governor said, it was not keen to regulate it just yet.

“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 RBI governor said. “If an e-commerce player is providing 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.”

The RBI governor also said that the entry of big tech into the financial sector poses concerns that need to be assessed. 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.

* A ridesharing company (also known as a transportation network company, ride-hailing service; the vehicles are called app-taxis or e-taxis) is a company that, via websites and mobile apps, matches passengers with drivers of vehicles for hire that, unlike taxicabs, cannot legally be hailed from the street.

“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.”

Taking aim at unfair practices employed by some digital lending firms in the context of digital-only banks, the RBI governor said that deploying harsh recovery methods like calling up at odd hours or using foul language is completely unacceptable and assured that the regulator was paying serious attention to curbing such activities.