RBI deputy governor urges banks to exercise prudent risk management

  • This comes amid banks' increasing dependence on fintech firms for identifying and onboarding customers

Gopika Gopakumar, Sashind Ningthoukhongjam
First Published30 Mar 2024
 M Rajeshwar Rao, deputy governor, Reserve Bank of India, at the Mint India Investment Summit.
M Rajeshwar Rao, deputy governor, Reserve Bank of India, at the Mint India Investment Summit.

Banks must ensure that their growing reliance on fintech companies does not result in poor underwriting standards and improper pricing of risk, cautioned M Rajeshwar Rao, deputy governor, Reserve Bank of India (RBI).

“The increased reliance of banks and non-banking financial companies to identify and onboard customers through fintech partners should not mean lowering underwriting standards and improper pricing of risks,” Rao said at the Mint India Investment Summit on Saturday.

The deputy governor said that the central bank is actively reviewing existing models to ascertain how fintech collaborations can enhance credit delivery without compromising risk management or prudential underwriting standards.

“As a regulator and supervisors, we are examining the prevailing models and practices to see how best we can leverage for effective credit delivery without compromising on risk management and prudential credit underwriting standards,” he added.

In recent months, the RBI has intensified its oversight of bank-fintech partnerships. Paytm Payments Bank was directed to halt deposit acceptance after the central bank found inter-related party transactions with its parent entity One97 Communications. Also, Federal Bank and South Indian Bank were asked to cease issuing co-branded credit cards after it was discovered that the process of customer acquisition via their fintech partners failed to adhere to RBI standards.

Despite these concerns, Rao affirmed the RBI's support for responsible innovation but underscored the necessity of vigilance over the development and market impact of new financial solutions.

“Harmonization doesn't mean a uniform set of regulations. It entails risk based perspective wherein regulatory requirements are tailored to specific risks associated with each type of financial entity and activity. The idea is that regulatory arbitrage should be by design and should not be an option exercised by regulated entity to to take advantage,” he added.

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