Money & Banking

Demonetisation, a creative disruption: Subbarao

Our Bureau Hyderabad | Updated on January 12, 2018 Published on January 05, 2017

Former RBI Governor Duvvuri Subbarao, flanked by IIT Bombay Prof R K Shyamasundar (right) and Director, IDRBT, AS Ramasastri, releasing a white paper on blockchain technology for the banking and financial sector, at Hyderabad, on Thursday. NAGARA GOPAL

Former Governor of RBI asks banks to wake up to the challenges posed by fintech firms

Duvvuri Subbarao, former governor of the Reserve Bank of India, has described demonetisation as creative disruption that attempted to destroy black money, which is a destructive creation.

Addressing the ‘International Conference on Distributed Computing and Networking’ here on Thursday, he said that the November 8 move to demonetise 86 per cent of the currency was “arguably the most disruptive policy innovation in the country after the economic reforms in 1991.”

The conference was organised by the Institute for Development and Research in Banking Technology (IDRBT). Stating that the cost-benefit exercise of demonetisation was contentious, he said the move has led to a flurry of innovations, including digitisation of payments.

Competing with fintechs

The former governor of RBI asked banks to wake up to the reality of fintech (financial technology) firms. He said these firms are able to provide faster, efficient and disruptive services. Though they lacked access to deposits such as the traditional banks, fintech companies have several advantages over traditional banks.

He said banks could focus on big lending while forging alliances with smaller banks to take on the competition from the new-age firms. “Focus on big lending and cede the last mile to small banks and payments banks,” he said.

Banks must change their attitude or new models could disrupt. “The challenge is good for all of us,” he said.

Regulator’s dilemma

He said the regulators faced a dilemma as to when to regulate. Citing the micro-finance example, he said while the new financing model helped small traders, the RBI was criticised for not intervening and regulating the interest rates. What could be a right rate of interest, he wondered.

“The regulators are torn between promoting a new model, securing the people’s interests and ensuring financial stability. Balancing these three is a difficult judgement call,” he felt.

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Published on January 05, 2017
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