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The Reserve Bank of India on Thursday highlighted the role of fintechs in promoting financial inclusion but said that it has also exposed the banking system to new risks that extend beyond prudential issues and often intersect with other public policy objectives relating to safeguarding of data privacy, cyber security, consumer protection, competition and compliance with AML policies.
“BigTechs can scale up rapidly and pose risk to financial stability, which can arise from increased disintermediation of incumbent institutions,” said RBI’s Financial Stability Report of June 2022
Operational linkages
It further noted that complex intertwined operational linkages between BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour.
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Says banking system can absorb any shock; credit growing in double digitsThe report also said that regulators and supervisors face a challenging balancing act between innovation-friendliness and managing risks to financial stability, which requires more engagement of stakeholders such as regulators, the fintech industry, and the academia to work towards common principles for management of fintech activities, including business and revenue models, governance, conduct, risk management, regulation aspects for promoting a sustainable ecosystem.
The Indian fintech industry, which is amongst the fastest growing fintech markets in the world, was valued at $50-60 billion in 2020 and is projected to reach $150 billion by 2025.
“Fintech innovations are ubiquitous, especially in retail and wholesale payments, financial market infrastructures, investment management, insurance, credit provision and equity capital raising and may lead to material changes in the financial landscape,” the report said.
Delinquency levels
The FSR also revealed that delinquency levels in aggregate consumer credit from fintechs has fallen from a peak of 4.83 per cent in September 2021 to 2.26 per cent by March 2022.
According to data sourced from TransUnion Cibil, the report revealed that delay in loan repayments and defaults to fintechs were higher than that to private banks, but lower compared to NBFCs and HFCs and public sector banks in March 2022.
Delinquencies levels for private sector banks were at 1.4 per cent in March 2022, 2.34 per cent for NBFCs and HFCs and 4.45 per cent for public sector banks.
The data is based on 90 days past due balances.
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