Embedded finance through platforms like Swiggy or Flipkart or Amazon among others are way forward. But when such enabling technologies come into the picture, it should not happen that large public sector banks in the country are caught off guard, said Professor Viral Acharya, former deputy governor.
He said this while speaking at 'The Future of Banking', a five-part webinar series.
According to him to make these public sector banks more accountable with improved digital, risk management and other processes, the best way would be to privatise some banks.
He added, “It would be good to not rely on so many public sector banks and hand over some into private hands and let them improve their digital, risk management and other processes.”
Explaining his view on private banks, Acharya said, “It is not that private banks are perfect, they make their own mistakes too. But we have better ability to change management and alter the governance structure when it doesn't work in a private bank...”
He stressed that when embedded finance technology is in place. “We cannot have public sector banking that is lagging behind in the adoption of technology.” Embedded Finance refers to non-financial companies like Swiggy, Flipkart, Amazon and others that act as loan service providers or aggregators, while credit is provided by the bank. This is mainly because these companies work closely with MSMEs that largely do not fall under the bank's credit system. He added “embedded finance will ensure that there is repayment of credit that can be digital and can be entrapped into transaction with a loan service provider.” He has written about this in his book ‘Quest for Restoring Financial Stability in India’.
He stressed the need for banks to factor in risk management in these new systems and technologies.