New technology and innovation will disrupt the current banking model, Uday Kotak, Vice-Chairman and Managing Director of Kotak Mahindra Bank, said yesterday at the CAFRAL conference on banking structure for India.

He said that he was not worried about competition from existing or new banking players. “What keeps me awake at night is the possibility of players such as Google, Facebook, Alibaba and others taking away the business,” he said.

Kotak said that the global crisis had shifted the focus by central banks and regulators towards financial stability over experimentation. He said that the system seemed to focus more on reducing arbitrage rather than improving efficiency.

Questioning the need for high deposit insurance premium rates for scheduled commercial banks, he wondered if the political economy is ready to take the risks of failure of some entities. This, he said, was leading to a reform by stealth, rather than a direct attack on the problems of the existing system.

Speaking about the role and regulatory framework of NBFCs, P.Vijaya Bhaskar, Executive Director, RBI, said that NBFCs were game changers and had a role complementary to the banks. He said that the regulatory framework should be supportive but arbitrage should be ironed out. He also said that the Usha Thorat Committee recommendations were very much on the table and final deliberations were being done by another internal committee. The final recommendations would be put out in public domain shortly, he said.

T.T.Srinivasaraghavan, Managing Director, Sundaram Finance, said that NBFCs had pioneered financial inclusion. While they were not shy of regulation, NBFCs he pointed out were treated differently when it came to access to SARFAESI Act or tax treatment of provisions for bad debts. In such circumstances, having the same NPA recognition norm of 90 days for banks and NBFCs showed a rigour that did not match with the entitlements, he said.

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