Regulations will have to get modified to match the technological evolution in banking, stated the panelists at the last session of ‘The Future of Banking’. At the same time, the panelists also stressed that in the quest for regulation, the spirit of innovation should not get hampered.
Speaking at the webinar organised by the Free Press Journal were: YS Chakravarti, MD and CEO, Shriram City Union Finance and Aseem Dhru, Founder and CEO of SBFC Finance. The session was moderated by R N Bhaskar, consulting editor, Free Press Journal.
Fintechs have helped in tapping the untapped India as far as banking is concerned. However, it is still evolving and there is more space for it to grow. As these fintechs grow, the major fear is who is regulating these entities. At present there are different regulators for different players.
Aseem Dhru said, “With technology many things have evolved, so the regulator has to evolve too.” He stated, “The challenge for the regulator is how to move forward today, by enabling more and more innovation to happen, supporting the growth that is taking place in the country, and creating a safe environment for the banks ahead.”
Meanwhile, Dhru also suggested that when the regulator decides to regulate it should refrain from over regulation which will hurt innovation.
It was also mentioned during the discussion that the regulator is solving yesterday's problem when managements (of banks) are focussed on tomorrow. “World over regulators are blamed for being behind the cycle. They cannot be blamed. It is not that they are doing something wrong. It is just that innovation cannot be held too tight. If innovation is held too tight, then innovation is not possible. You need to allow people to innovate,” reiterated Dhru.
Praising the Reserve Bank of India (RBI), Dhru said the idea of a sandbox to allow innovation along with monitoring them is a great initiative of the RBI. The regulator should look at such ways and means to evolve, he stressed.
Adding to this, YS Chakravarti stated while technology has made a lot of financial activities possible, there is also a need for a clear distinction on who is to be responsible if there is a failure.
In addition, Chakravarti added, the regulator should give a level playing field to NBFCs. He suggested the government will have to look at reducing the cost of borrowing for NBFCs. “NBFCs play a huge role in providing last-mile lending.” He asserted that NBFCs and small finance banks help banks reach last mile lending which otherwise is difficult for banks. “The needs of the customers are changing so fast and banks alone are not equipped to handle it. It is only the smaller institutions like us that can address the needs of the new world,” claimed Chakravarti.
Citing countries such as the US and other developed economies, Dhru stated that India’s fintech has not reached that stage where they can offer direct competition to banks. He added in India one-third of the cheques bounce. Thus, many small banks and lenders prefer to recover advanced loans in cash. “A significant portion of the money comes in cash to the lender even today.” Dhru highlighted, “I can lend digitally but I cannot collect digitally. In India, if you do touch-free lending you will not touch money again.”
Commenting about the pandemic and how it influenced transactions, Chakravarti said that during the pandemic many borrowers opted for online transactions with the lender. But as soon as the lockdown was lifted, these borrowers went on to deposit cash. According to Chakravarti, it will take almost a decade for India to reach numbers like those of China.
Talking about banking in the US market, Dhru stated in the US around 560 bank failures have happened in the last 20 years. “However, in India, bank failure is considered as a sin. But the reality is that banking is a business and there are at times, banks will fail.”