Lenders asked to avoid risks: FM Sitharaman

New Delhi: Finance minister Nirmala Sitharaman on Thursday urged lenders to exercise prudence while lending, reinforcing the Reserve Bank of India's (RBI) advice to adhere to core banking practices amid the push for digital transformation.

In her address at the Digital Acceleration & Transformation Expo 2023, Sitharaman highlighted the RBI's warning to non-banking financial companies (NBFCs) and small finance banks (SFBs) against overextending their lending activities. 

"The RBI has alerted NBFCs and SFBs to be careful so that they don't go too far too soon and face downsides risks…We have (also) been after state owned banks to focus on their core business, their banking business, which is to collect deposits, and lend, and make money out of lending, and giving more returns to people keeping their savings (with banks)," Sitharaman added.

The follows RBI governor Shaktikanta Das's recent advise to lenders to avoid lending exuberance and account for risks while pricing loans.

Earlier this week, the central bank raised risk weights for consumer and NBFC loans to curb the surge in unsecured credit growth. 

Meanwhile, Sitharaman highlighted a lack of public awareness about fintech tools like account aggregators, which are instrumental for inclusive financial expansion but underutilized due to insufficient outreach or the need for simpler technologies.

Data gathering is an issue that investment advisers face when dealing with clients. Account aggregators cut down time taken for data gathering substantially. Popular examples include PhonePe, Yodlee, and OneMoney.

Sitharaman also said that several countries have entered into agreements with India to share digital public infrastructure (DPI) technologies, underscoring India's capabilities in scaling such innovations with public funds.

In September, India had signed memorandums of understanding (MoUs) with Armenia, Sierra Leone, Suriname, Antigua, Barbados, Trinidad and Tobago, Papua New Guinea and Mauritius, offering them the India Stack and DPI for free and with access to open-source.

Sanjiv Sanyal, member, Prime Minister's Economic Advisory Council (PMEAC), present at the same event, advocated for a regulatory body akin to the Securities and Exchange Board of India (Sebi) to oversee the burgeoning field of artificial intelligence (AI). He emphasized the necessity for such a body to ensure transparency and maintain standards, including regular audits and explainability of AI operations.