Governor’s interaction during Mint BFSI Summit & Awards 2024 on January 11, 2024 (Edited Excerpts) - আৰবিআই - Reserve Bank of India
Governor’s interaction during Mint BFSI Summit & Awards 2024 on January 11, 2024 (Edited Excerpts)
Shri Shaktikanta Das, Governor, Reserve Bank of India
delivered-on জানু 11, 2024
Moderator: Shaktikanta Das: In this process, what was happening was that every institution, whether it is a bank or an NBFC, has a certain management bandwidth to appraise proposals, to diligently examine a loan application. Some of them have got model-based lending and there are models which automatically generate sanction letters. We saw that banks and certain NBFCs, as per our supervisory assessment, did not have that kind of bandwidth of diligence, bandwidth of doing due diligence of the loan proposals to justify the kind of loan growth in these sectors that was seen. It was very clear that going forward this kind of growth would not be sustainable if it is not slightly moderated. So, we clearly smelt, saw and anticipated some problems ahead of us down the road. We, therefore, acted preemptively. Our approach is that, as I said in the last monetary policy, we do not wait for the house to catch fire and then act. We would like to see where the fire is likely to arise and act in time so that there is no fire in the house. Moderator: Shaktikanta Das: This model-based algorithm or model-based lending is one area where currently we are looking at. I have mentioned about it in one of the speeches about a month ago also. The robustness of models is something for the Bank Management, Board of Directors, that includes NBFCs also, the audit committees or the risk management committees of these financial entities to see how robust are the algorithms and how robust are the models. The ground realities keep on changing. Whether your model is falling behind the curve or it is in tune with the times and what are the possible risks which the models can create? That is one area which we are closely studying now. But again, our expectation is that the management of the banks, the boards of banks and NBFCs should themselves analyse and look at the possible riskiness or the possible gaps which are there in their model-based, algorithm-based lending, which can lead to a potential crisis. Moderator: Shaktikanta Das: Moderator: Shaktikanta Das: It is a long list of the digital lending apps (DLAs) which are engaged by either the the banks/NBFCs themselves or third-party service providers which are engaged by them (banks/NBFCs). The responsibility is more for the law enforcement agencies to look at and identify illegal apps. RBI does not regulate these apps. Since, we regulate only banks and NBFCs, we have cast the responsibility on our regulated entities to see that the fair Code of Conduct and fair business practices are adopted by their third-party service providers. But the problem is with regard to the illegal lending apps. Whenever we come across any further problem of illegal lending apps, we bring it to the notice of law enforcement agencies. There is an active engagement between the Reserve Bank, the concerned ministries, the Government of India and the law enforcement agencies. These coordination meetings are held regularly between these agencies to take appropriate measures against the illegal lending apps. There is growing awareness also among the people. We have been doing a lot of media campaigns and awareness programmes to sensitise the public not to fall prey to any sort of apparently attractive-looking loan or some other offerings. Moderator: Shaktikanta Das: It is for those fintech companies to identify how much of initial loss or how many years of loss they can absorb. It is a question which they should be asking themselves. Is the model adopted by them risky or likely to create loss? If it is something which is loss-making, it is a question which they should answer themselves, whether they should travel down that lane and at what speed. So far as we are concerned, I would like to say that the digital lending apps, we have not done anything. We have only put the responsibility on the bank management to ensure that fair practices are followed by their lending apps. We have also sensitised the banks through our direct interaction that they must also look at these lending algorithms and what you call model-based lending. The digital lending guidelines have been issued after wide consultation. I would like to say very clearly that the digital lending guidelines have been well accepted. Look at the FLDG (First Loss Default Guarantee). When we issued the digital lending guidelines, there was a lot of clamour that we should also recognise FLDG. At that time, we clearly said that it was under examination and we would consider it. Then we had extensive deliberations and consultations with the actual players. The percentage, which we have prescribed, is something which came from their side, and we examined it, and we accepted it. The fintech sector is growing. It will grow. The fintech sector, fintech lending sector, and digital lending sector will grow, but they need to grow in a sustainable manner and that is our emphasis. Moderator: Shaktikanta Das: UPI is now positioned in a place where it is a public infrastructure, and it has to make its presence felt. So, UPI needs to grow and that is the first aspect I will say. I would not look it as a monopoly because it is a kind of thing that anybody can come and play with that. It is based on the principle of public-private partnership. The success of UPI, in a large measure, also owes a lot to the private sector payment players who have onboarded into UPI. Companies have had a major role. We want to position UPI as a digital public infrastructure. It is an open platform. It is available to all and that should grow. It is the best system in the world and should become a world leader in facilitating similar payment systems in other countries and also help in developing and improving the cross-border payments that we have. Now, you are referring to the new umbrella entity. We got some proposals. There were many applications. Most of the proposals were just a replication of what the NPCI was already doing. What we were looking for are some new innovative methods, some new, some innovative, some value addition to our payment systems, which we did not see. Having said that, we will take an official view on this matter then we will make the necessary announcements as and when we take the official view. Moderator: Shaktikanta Das: The question arises, why do you need to travel down that road? What is it that you get out of it? It is the speculative nature of that product which enables some people to make perhaps big money for some time, but the majority of people are not going to make big money for all time. In fact, the majority of people will encounter losses because it is an entirely speculative product. I do not wish to comment on what another regulator of another country has done. I would not like to comment on that because they know what is best for their country and accordingly, they have acted. But I would like to say two things. Firstly, they themselves have flagged the riskiness of the products and advised people to be very careful. Secondly, I would like to say that we are all familiar with the term, the tulip mania in the Netherlands which built up into a big asset bubble and then it collapsed. So, I do not think the world and in particular the emerging market economies can afford a crypto mania which will lead to similar outcomes. Moderator: Anirudh Gupta: Shaktikanta Das: Neerav: Shaktikanta Das: Coming to retail, there have been many learnings. We are working on the possibility of programmability in CBDC, for example, the Government cash transfers to farmers or other segments. Whenever there is a direct benefit transfer or a cash transfer, you program it in such a manner that the CBDC which is transferred to the wallets of the beneficiary, is utilised only for that purpose, i.e., where the end use is clearly defined by the person who is sending the money. That is one area where we are working. Recently we have made UPI and CBDC interoperable. You can use your UPI payment system, you can use the CBDC wallet also, and you can use the same QR code. Slowly, there are many learnings which are coming up. There are few countries in the world which are in the pilot mode and there is a lot of interest from other countries also in our CBDC system. So, CBDC in times to come is the future currency system and in particular, CBDC will make cross-border payments much faster much more efficient and less expensive. CBDC, we are using the blockchain. We will go for the distributed ledger technology (DLT) method. So, to the critics of the RBI's view on cryptocurrency, let me say that we firmly believe that the technology of blockchain has its merits. It can be used and it is already being used by many companies even in India such as the logistics providers, maintenance of land records, the land registration records. There are huge opportunities available in blockchain technology per se. But the technology does not need a product called cryptocurrency to grow. We are using blockchain, for example, in CBDC. We will be using the DLT model also, but it is a huge opportunity and that is going to be the future currency system and we need to be there. Neil Borate: Shaktikanta Das: In the description of the Indian rupee as a stabilised arrangement, the fundamental strength of the Indian rupee is being missed out. They are, the strength of the macroeconomic fundamentals of the Indian economy, the resilience of the Indian financial system, the return of inflows into India, FPI inflows in particular. FDI inflows this year are less than what it was last year, but given that the global FDI volumes have gone down, in that, India's share is one of the bigger ones. So, these are the points which are being missed out. Our exchange rate system, our economy today is not what it was a few years ago. But that is beside the point. Coming specifically to your question, I am not questioning the genuineness of their demand. It is a question of timing. When we feel confident that things are, it has to be stable on a durable basis. It is already stable. We will take the call at the right time. Moderator: Shaktikanta Das: The second thing is that our fiscal has not fueled inflation in India. Unlike in many other countries, where a huge amount of liquidity was injected into the system. Even pre-COVID, it was there. But during COVID, the kind of huge liquidity that was injected is still sitting out there and circulating somewhere. The liquidity injection also fueled inflation. In India, that did not happen. From the monetary policy side, the liquidity which we gave was for limited periods which have come back to us and we have also been pulling out liquidity. On the fiscal side, the fiscal support that the Government provided during the COVID times and thereafter was also targeted, and it was very calibrated and did not fuel inflation. I have talked about it at length outside. So, going by the past track record, there is no reason to believe that any announcements in the budget would be inflationary. Moderator: |