On May 30, 2023, RBI released its Annual Report 2022-23. It describes RBI’s achievements and policy initiatives in the last financial year. But more importantly, it specifies RBI’s agenda for 2023-24. We have highlighted some key action items below:
- Development of a framework to manage the fintech ecosystem in the country: For this, RBI’s working group is in the final stages of framing its recommendations. The recommendations will, among other things, include a vision and strategy for development of the fintech ecosystem and a framework for fintech and Bigtech regulation.
- Review of licensing requirements for NBFCs: Last year, RBI rejected NBFC applications of several prominent fintechs without specifying any clear reasons. With more fintechs jumping the NBFC bandwagon, a more transparent and streamlined licensing process is necessary for NBFCs. We discussed this issue in our FinTales – January 2023 edition.
- Enhance the scope of UPI payments through bank-issued credit lines. Fintechs can leverage on this opportunity to build innovative products. RBI first proposed this linkage in its Statement on Developmental and Regulatory Policies in April 2023. However, linking only bank-sanctioned credit lines (to UPI) and not NBFC-sanctioned credit lines, may not add much value to the credit ecosystem – we’ve written about this in our FinTales – April 2023 edition.
- Create an open, inter-operable ‘credit platform’ that will act as a single-point data repository for all lenders (like banks and NBFCs). The objective of the platform is to enable lenders to leverage on this data and facilitate smooth credit delivery. Earlier this year, the Finance Minister had also announced that the Government will establish a National Financial Information Registry – that will serve as central repository for financial information and other ancillary information. This agenda may be in line with the Finance Minister’s announcement.
- Develop RegTech and emerging SupTech tools (or supervisory technology tools) using AI/ML technologies, that regulated entities (REs) can adopt. An example of SupTech tool is the platform ‘Daksh’ – an advanced supervisory monitoring system launched by RBI to monitor compliances and reporting by REs.
- Expand the ongoing Central Bank Digital Currency (CBDC) pilot for both wholesale and retail CBDCs by incorporating more use cases and features (for CBDC). In this context, RBI mentioned that so far, the results of both the pilots have been satisfactory and in-line with its expectations. RBI also wants to expand the retail-CBDC pilot to more locations and include more participating banks and users. Amidst the expanding pilots, fintechs may find opportunities to create new products. For instance, Pine Labs recently partnered with ICICI Bank (a participating bank in the pilot) to provide a technology integration solution that can help accept CBDC payments at its point-of-sale (PoS) terminals.
- Create a new lightweight and portable payment and settlement system (LPSS) to ensure uninterrupted payments during exigencies (like war). Currently, payment systems (like UPI, NEFT, RTGS) are built on complex technology (to handle large payment volumes). But they often fail to function during catastrophes (like natural calamities or war). This causes temporary disruptions in the payment system. To address this issue, LPSS will be built on a different technology than the one used for existing payment systems. For instance, LPSS (a) will require minimum hardware, software, and human resources, (b) can be operated from anywhere, and (c) will ensure continuity in functioning of payment systems. Overall, LPSS is expected to enhance public confidence in digital payments and the financial market infrastructure (even in critical situations).
- Make the account aggregator ecosystem more efficient and robust. For this, RBI is working closely with Reserve Bank Information Technology Private Limited (ReBIT) and other stakeholders.
This was a glimpse from RBI’s laundry list that fintechs can look forward to taking shape in the coming months. What are your expectations from RBI this year? Let us know in the comments section.
This blog has been authored by our Fintech Team.
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