RBI's stand on experimentation will be clear in the soon-to-be-released peer-to-peer lending regulations, Raghuram Rajan said
Hyderabad: Reserve Bank of India (RBI) governor Raghuram Rajan on Monday said that the Indian central bank is more open to experimentation at the early stages of a product or method of service but at the same time will have to be more conscious of the risks to stability.
RBI’s stand on experimentation will be clear in the soon-to-be-released peer-to-peer lending regulations, Rajan said, delivering the keynote lecture at an award function organized by Institute for Development and Research in Banking Technology (IDRBT).
RBI has initiated steps in April to regulate the nascent and hitherto unregulated peer-to-peer lending business.
Online P2P lending companies work as marketplaces that bring individual borrowers and lenders together for loan transactions without the intervention of traditional financial institutions such as banks and NBFCs, considered as a potential disruption in lending business.
Rajan said with fast pace of technological changes, payment services are no longer the monopoly of banks.
“Non-bank entities are providing innovative payment products and services, forcing banks to reflect upon their strategy—to compete or to collaborate? Banks may not have the wherewithal to compete effectively if they have not been investing in technology and associated personnel. However, if they collaborate without building these capabilities, they may be left with crumbs from the client while their partner take the whole client cake," Rajan said.
Rajan said RBI welcomes both competition and collaboration.
“What we do find concerning is stasis," Rajan said.
“For instance, the long period when mobile companies and banks were not willing to work together for fear that one would capture the other’s clients. The licensing of payment banks has broken that logjam, and a number of alliances are now underway," Rajan said.