Financial sector regulators must adopt a “developmental” mindset to increase access and encourage competition in the sectors that they oversee, whether it be mutual funds, pensions or insurance, Krishnamurthy Subramanian, Chief Economic Advisor to Finance Ministry has said.

“While we have over 40 mutual fund houses in the country, top 4-5 account for 70-80 per cent of the inflows. That is not indicative of a sector that is competitive. What we need is far more genuine competition”, Subramanian said at the Global Fintech Fest 2021.

Across the board, there is need for more competition that enables access and drives down prices, he said. The penetration level of mutual funds, insurance and pension products are still low in India, he said. “The respective financial sector regulator have to take the bull by its horns,” he added.

Subramanian pointed out the US situation where Fidelity and Vanguard charge mutual fund fees at a fraction of those charged in India. “This is indicative of lack of competition (in India)”, he said.

The Global Fintech Fest 2021 was organised by Fintech Convergence Council (FCC) and Payments Council of India ( PCI), of Internet and Mobile Association of India (IAMAI).

Private sector bank loans

Subramanian said that time has come for private sector banks to think of introducing analytical model for large corporate and SME lending. “Private sector banks have primarily implemented models (analytical) only on retail lending. On large corporate lending where wilful default becomes a huge problem, the use of analytical models and data intensive credit evaluation has been conspicuous by its absence.

Private banks must realise that it is not adequate to develop model just for retail lending. There are enough opportunities to lend for SMEs and corporates,” he said.

The Chief Economic Advisor called upon banks to embrace technology in a big way, noting that they are still offering the 1960s or 1970s kind of banking services in terms of use of technology and analytics. There are lot of opportunities to overlay fintech on banks to improve credit growth in the system.

“Now is the opportunity for banks to leapfrog by aligning with fintech’s or implementing these models themselves.

By aligning with fintechs either in-house or outsourced, banks can grow their balance sheets and do good business in a profitable way”, Subramanian said.