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Key points from RBI Governors speech at FinTech conclave: KYC Registry, Regulatory Sandbox, RegTech, Digital Payments numbers

The Reserve Bank of India’s Central KYC Registry has around 100 million records, RBI governor Shaktikanta Das said at the FinTech conclave organised by Niti Ayog. At the conclave, while highlighting the importance of the Aadhaar ecosystem in incentivising the adoption of digital platforms, “as it is happening in the case of direct benefits transfer (DBT), Das said that “the central KYC registry is a significant step in this regard – about 100 million KYC records have already been uploaded onto this platform.” In December 2008, the RBI had asked All Scheduled Commercial Banks (SCBs) to upload the KYC data pertaining to all new individual accounts opened on or after January 1, 2017, with Central KYC Records Registry.

Key points made during the speech (read)

  • Cross border data flows: The RBI sees cross border data flows as major regulatory risks. “Risks for FinTech products may also arise from cross border legal and regulatory issues”, Das said.
  • “Data confidentiality and customer protection are major areas that also need to be addressed.”
  • FinTech no longer the monopoly of banks: “Non-bank entities are cooperating as well as competing with banks, either as technology service providers to banks or by directly providing retail electronic payment services. The regulatory framework has also encouraged this enhanced participation of non-bank entities in the payments domain.”
  • Regulatory Sandbox guidelines in 2 months: “The Reserve Bank’s working group on FinTech and digital banking (Report of the working group on FinTech and digital banking, November 2017) suggested the introduction of a ‘regulatory sandbox/innovation hub’ within a well-defined space and duration to experiment with FinTech solutions, where the consequences of failure can be contained and reasons for failure analysed. A ‘Regulatory Sandbox’ would benefit FinTech companies by way of reduced time to launch innovative products at a lower cost. Going forward, the Reserve Bank will set up a regulatory sandbox, for which guidelines will be issued in the next two months.”

What the working group on FinTech and digital banking, which had recommended the regulatory sandbox:

  • An appropriate framework may be introduced for “Regulatory Sandbox/innovation hub” within a well-defined space and duration where financial sector regulators will provide the requisite regulatory support, so as to increase efficiency, manage risks and create new opportunities for consumers in Indian context similar to other regulatory jurisdictions.
  • In view of IDRBT’s unique positioning as a research and development institute, and as indicated by some of its activities, it is felt that IDRBT is well placed to create and maintain a regulatory sandbox in collaboration with RBI for enabling innovators to experiment with their banking/payments solutions for eventual adoption. The Institute may continue to interact with RBI, banks, solution providers regarding testing of new products and services and over a period of time upgrade its infrastructure and skill sets to provide full-fledged regulatory sandbox environment. The Reserve Bank of India may actively engage with the Institute in this regard
  • RegTech and SupTech: The RBI intends to take a technology and data-driven approach towards regulation and supervision, and Das pointed towards RegTech (Regulatory Tech) and SupTech (Supervisory Tech) for achieving this, saying that both of these “aim at improving efficiency through the use of automation, introducing new capabilities and streamlining workflows.” The RBI, he said, has been using SupTech for data collection and analysis, for example, in case of “Import Data Processing and Monitoring System (IDPMS), Export Data Processing and Monitoring System (EDPMS) and Central Repository of Information on Large Credits (CRILC),” among others.

    “The future of RegTech and SupTech technologies, however, lie in big data analytics, artificial intelligence, machine learning, cloud computing, geographic information system (GIS) mapping, data transfer protocols, biometrics, etc.”

  • What the RBI sees as sources of risk:
    • “unsustainable credit growth,
    • increased inter-connectedness,
    • procyclicality,
    • development of new activities beyond the supervisory framework and
    • financial risks manifested by lower profitability.”
  • P2P Lending: Eleven peer-to-peer (P2P) lending entities have been licensed to operate by RBI.
  • Account Aggregators: A total of five entities have been given in-principle approval as NBFC-AA and are expected to commence their operations during 2019-20.

Growth in digital payments:

  • Survey says FinTech adoption rate of 52%: there are 1218 FinTech firms operating in India.
  • The total volume of retail electronic payments witnessed about nine-fold increase over the last five years.
  • NEFT system handled 195 crore transactions valued at around Rs.172 lakh crore in 2017-18 growing by 4.9 times in terms of volume and 5.9 times in terms in terms of value over the previous five years.
  • The number of transactions carried out through credit and debit cards in 2017-18 was 141 crore and 334 crore, respectively.
  • Prepaid payment instruments (PPIs) recorded a volume of about 346 crore transactions, valued at Rs.1.4 lakh crore.
  • The total card payments, in volume terms, stood at 52 percent of the total retail payments during the year 2017-18.

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