RBI shows it's the Boss
On January 31st, a day before the Interim Budget, the RBI issued a one-page press release that threw the financial industry into a spin. The order effectively gave Paytm Payments Bank a month to close business. For a week the news was rife with stories from “sources” of what could possibly have gone wrong, till the RBI Governor gave categorical replies on February 8th at the Monetary Policy Statement press conference making it clear that the RBI is a “responsible regulator” that gives ample opportunity for entities to respond to non-compliance orders. He also said the RBI would release an FAQ shortly to address specific queries. After the meeting of the Central Board of Directors of the RBI on February 11th, he told the press there was no scope for review of this particular action and the FAQs would only deal with customer-related issues related with depositors, customers, wallet users, FASTag holders.
There has been a flurry of opinion on whether the RBI has acted fairly and some startup founders even wrote to the RBI and Finance Ministry requesting a rollback. Views have been quite diverse – for instance Andy Mukherjee has a strong piece saying the action could have been better managed. In a conversation on CNBCTV18, Nikhil Pahwa felt the timeline could have been longer with conditionalities and Sandeep Parekh made the point that there are hardly any facts in the public domain through the RBI press release, unlike SEBI which issues detailed orders.
More transparency and detailed communication from the RBI would definitely go a long way in preventing loose talk and news from “sources”. Whatever the facts, there is a sense in the industry that there is no appellate process when the RBI comes knocking on your door, as Arundhati Ramanathan points out. The industry has to take compliance as seriously as the regulator does.
Even as the RBI is totally focused on the consumers, possibly the FAQs could have been a part of the press release last month. The RBI is now reportedly consulting various authorities like NPCI, BBPS and NETC to minimise friction for consumers, such talks could possibly have been done earlier. Clear guidelines and coordinated action would have removed the confusion and disruption and strengthened trust in digital payment systems.
Ironically, earlier in January, the RBI had released a 'Draft framework for recognising Self-Regulatory Organisations (SRO) for FinTech Sector' for public feedback by the end of February. The draft framework set out the characteristics of a FinTech SRO, its functions, governance standards, etc. The document states that “Appropriately designed, self-regulation can usher in self-discipline, high levels of internal governance and foster an environment conducive to an organised and organic development of the FinTech sector.” In the context of the unfolding drama, it will be interesting to see whether an SRO can truly usher in a more compliant industry.
There is of course a lot more going on in the financial inclusion space and we highlight two must-read pieces for this month: a) Aftab Ahmed, Saurabh Sharma and Jatindra Dash have put together data from various sources, including a small survey in villages to make the big picture on rural consumption in India and household stress, which has implications for India’s financial inclusion mission; and b) DBS Bank and CRISIL Limited have a report on how urban Indian women plan and manage their finances with insights from the survey of over 800 women across 10 cities. There are interesting data points on regional differences, financial product preferences and so on for women across various ages and life stages, which can serve as pointers for financial service providers in designing appropriate products.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
Jiji Mammen writes in Financial Express on what it will take to raise the target for Lakhpati Didi from 2 crore to 3 crore.
Sumita Kale writes on why the Interim Budget was a missed opportunity for MSMEs.
Arundhati Ramanathan, Rounak Kumar Gunjan and Gaurav Noronha have put together an exhaustive story on “Why the RBI killed Paytm Payments Bank” – they conclude, “The bank was joined at the hip with the eponymous payments app. That was its undoing.”
Graham A N Wright, Anant Jayant Natu and Partha Ghosh write on the crucial role of finance in locally-led adaptation to climate change.
Natasha Agnes D'cruze, Misha Sharma, Susan Thomas and Geetika Palta explain the Dvara-xKDR financial inclusion measure that captures the access of the household to all available products, how these are being used, and the impact that they have on the well-being of the household, whose members access the formal financial system.
Sabyasachi Goswami writes in Financial Express on the role fintechs are playing in providing access to credit to MSMEs.
Economic Affairs Secretary Ajay Seth has said that a draft Bill for setting up a National Financial Information Registry (NFIR) is almost ready and it may be introduced in the July session.
Graham Wright writes on the interesting times we live in, looking at technology and climate change.
Union minister for Home and Cooperation, Amit Shah, launched a ₹225 crore drive to computerise over 1,000 agriculture and rural development banks and offices of the registrar of cooperative societies in states and Union territories across the country.
Priyadarshini Ganesan, Sowmini G Prasad and Misha Sharma have a deck out in which they discuss some factors influencing life insurance take-up, the problem with endowment life insurance for the low-income segment, and how better disclosures could be the first step in helping households choose the right insurance product for them.
Gaurav Gupta has taken a critical look at where India stands today in financial inclusion.
Prabir Borooah and Ajit Agarwal emphasise why women business correspondents are the key to expanding inclusion in India.
Natalia Pecorari, Rani Deshpande and Antonique Koning write on the gender gap in financial inclusion that remains stubbornly persistent in some parts of the world.
Priyadarshini Ganesan does a deep dive into the unique and complex financial lives of these households to set the context for product and process design.