Similar regulations for banks and fintechs by RBI

23/12/2022

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Similar regulations for banks and fintechs by RBI

Reserve Bank in its report, delivered for similar regulation for both banks and non-bank entities like fintechs if they are undertaking the same activity.

There is a risk of creating inefficiencies and risks associated with regulatory arbitrage if fintechs are granted to carry out similar services without the tighter regulations governing banks like capital adequacy, know your customer (KYC) requirements, leverage and liquidity norms.

The fundamental point is that any entity providing banking services demands to be subject to similar regulation as banks.

Recent incidents:

Deputy Governor of RBI T.Rabi Shankar has given the recent example of prepaid instruments which having been used to extend credit lines sans a proper licence.

He has also hinted at Big Tech’s attempts at garnering deposits as cases of “regulatory arbitrage” which the RBI is concerned about and will act against.

To avoid the inefficiencies induced by differential regulations for similar activities across different entities, a non-bank undertaking banking functions needs to get licensed and regulated like a bank.

Without the licence, it should not be set aside to undertake banking activities.

Innovation in banking industry:

RBI stated that it will not end innovation and suggested banks to look for tie-up or outrightly purchase such technologies to ensure that customers get the best services which are available in the market.

It is cleared that, no regulator can take the chance of letting innovation disrupt the financial system in the hope that the market might reach its own equilibrium eventually.

Question & Answer:

Q1. The meaning of fintech and it’s examples.

Ans. Fintech is the short form of Financial Technology which pertains to the integration of technology into offerings by financial services companies

Examples: Payments with App, P2P lending, investing apps, crypto apps etc.

Q2. Who is T Rabi Shankar?

Ans. T. Rabi Shankar is the deputy governor of RBI

Q3. How many deputy governors in Reserve Bank of India?

Ans. Four