Perfios, in association with India Fintech Forum, organized a session on the topic of Fintech and the Role of Regulations in India. The event was organized on Monday, the 28th of May, 2018 at the Perfios’ office, HM Vibha Towers, Koramangala. The discussion was led by Mr. R Gandhi, Ex. Deputy Governor, Reserve Bank of India. The event was attended by various fintech CXOs.
The discussion revolved around the fact that Fintechs work as enablers in the financial industry in the country and are not meant to replace them. They either cater to a segment of customers who because of various reasons, are either under serviced by current financial institutions (eg Micro-finance institutions and P2P lending businesses etc) or they work as enablers helping the financial institutions with a part of their process (data aggregation, automated underwriting etc). Whereas banks in the other hand are meant to cross-subsidize their assets and liabilities.
Arguing in favour of regulations Mr. Gandhi explained that under the guidelines of the Reserve Bank of India, whenever an organization has a direct contact with money, it needs to be regulated. Regulations do seem to be a burden on such businesses in time when things are going well, but their need is recognized only when things go bad. Regulations help prevent, and in some cases help reduce the effect of an economic breakdown in the particular space.
RBI has always been clear with the regulations regarding money i.e. where-ever there is movement of money through a system, it has to be regulated. Mr. Gandhi also mentioned that in certain services like data aggregation, pure technology companies and companies acting as agents of financial institutions, no regulations are needed. More has been elaborated in the Questions and Answers.
When a fintech works with a bank, it attracts less attention, which is always good for the business. It does not seem like the fintech is looking to eat away the bank’s business. Even in such a case, big banks like SBI won’t be affected, but the smaller players is where the criticism will come from.
P2P is a new business and any new business has to follow the standard regulations already set by the RBI. As time goes by, the business would stabilise, and the regulations would be relaxed accordingly.
With respect to the number i.e. higher limit to the amount for P2P lending, it is an arbitrary number set up according to convenience. There is no justification for it and it is wholly dependent upon the players in the market to convince the RBI to raise the limit with suitable validated claims.
Aspects regarding e-KYC are not regulations but law of the nation. The current ruling is done in regard to internal security reasons and the right to privacy. SEBI did come under criticism for the same, but it is for the law. In the future however, it seems to be the case that e-KYC with Aadhaar will be allowed for financial purposes. Also, the ₹60,000 limit for transactions with e-KYC is unlikely to change.
e-docs are valid as per law, but case laws have not come up just yet. As per the law, an e-signed document is accepted, whether it will be followed in practice, there is no clarity as no case laws have come up. However, it is clear that the whole world is moving towards e-docs and so will we in the future.
PKI based e-signatures are only considered valid and legal. Neither electronic signatures done on digital electronic pads which are not backed by PKI security nor Click wrap agreements can be considered for such purposes as they are not legal contracts.
It is unlikely for that to happen as the current value of 2 crore is quite low already. For an organization to enter the lending business with such a small amount of money, it would result in a very unstable business. Also, it is necessary to keep the non-serious players out of the scenario.
Recently banks have been pushing for such a clause, but this is not in practice. It is not right. As per the spirit behind the banking correspondent model, banks should be taking the risk and the business correspondents will only be the supporting players. Sharing of risk was not considered. However, it may change when a threshold is crossed.
Payday loans are a normal thing. The interest rate is always under control but there is no specific number to that. In a free market a number is not supposed to be put on the same. If this rate crosses a limit, RBI will intervene. An example of microfinance institution failing was of the Andhra Microfinance crisis where RBI had to intervene.
I believe crypto currency will not survive. It did get a lot of attention because of the wide variation in the value. RBI has declared it is not a legal tender and should be treated like an investment. Also people are free to invest in anything they like in a free economy provided it is not illegal so RBI has decided not to ban cryptocurrency.
As of now RBI has no consensus regarding it but credit assessment should go beyond credit score. It will consider looking into the matter after the Supreme Court gives its decision on privacy of information. Possibly the judgement on Aadhaar will give us a way forward.
India has had such a sandbox for over 3 decades. IDRBT has set up four laboratories for the purpose of experimentation of new ideas in banking technology.
RBI has come up with ReBIT for the same purpose for enabling Fintechs to interact with RBI. IDRBT (Institute for Development and Research in Banking Technology) is another forum where technology groups can communicate with the RBI. Also regular departments like the Department of Information Technology and Department of Payment and Settlement Systems can be approached for interaction and sound advice.