Experts on the concluding day of IIM Kozhikode’s week long seminar on ‘Banking Regulation, Intermediary Soundness and Systemic Stability’ cautioned that while digital transformation of banks and finance was an inevitable force with the genie already out of the bottle, it was important to stay focused on managing the transformation and stay focused on emerging risks.
Nitin Chugh, Deputy Managing Director & Head of Digital Banking, State Bank of India, delivering the valedictory address and participating in the panel discussion at the Seminar, noted that financial services players are progressing up the value chain with digital offerings, but brick and mortar branches would co-exist with digital banking. Asked about the SBI strategy to compete with others in either space, he explained that the bank believed in investing in emerging technologies to create value for customers. He, however, sounded a note of caution on account aggregators using the personal data for multiplying business and suggested regulators should keep a close watch on their misdoings.
Dr. Mridul Saggar, Professor and Head of the Centre for Excellence in Marcoeconomics, Banking and Finance and former Executive Director at RBI, raised issues about disintermediation through digital finance. He said that while creative destruction in history has helped raise global growth rates, one needs to be cautious both on cryptocurrencies and CBDCs. He pointed out that CBDCs have a potential to reduce competition in the financial space, while too many blockchains were a social waste. ‘Stablecoins’ was a misnomer as their limited reserve backing makes it impossible to keep their values stable. Even if it does, they will not attract investors who are driven only by speculation. He said that the fine print of G20 summit declaration would be important in setting the future course and the IMF-FSB synthesis paper on the issue was veering towards regulation of crypto assets when regulators have insufficient tools to do that. He also cautioned about ALM mismatches in some financial intermediaries even though NPAs were currently low.
Vijay Shekhawat, Chief General Manager, Department of Supervision, Reserve Bank of India said that regulation is necessary to ensure financial stability even if it comes in way of some innovations. He urged banks to make increased use of data analytics to better understand risks, while staying cautious about inferences and false positives that it can throw. He added that RegTech can have wider adoption and even SupTech tools being put in place by RBI were helping in analysis of fragilities.
Manoranjan Mishra, Chief General Manager, Department of Regulation, Reserve Bank of India observed that the scale-based regulation of NBFCs was working well and bank-like regulation of upper layer NBFCs was a necessity. He dispelled the notion that it imposed an excessive regulatory burden on those NBFCs clarifying that NBFCs still had some advantages over banks in meeting credit, market and liquidity risks.
Prof. Rudra Sensarma, Professor of Economics, IIM Kozhikode suggested that banks have to operate on “phigital” model combining physical presence with adoption of digital technologies. DeFi and banks will coexist but the former has risks as they are weakly regulated. He emphasised the need to improve digital financial literacy.
These discussions were in continuation of the first day’s inaugural address by Shri M. Rajeshwar Rao, Deputy Governor, RBI who had laid down RBI’s vision to develop credit markets to mitigate credit risks and Prof. Debashis Chatterjee, Director, IIMK’s emphasis on developing Indian financial systems further to spur innovation, inclusivity and growth. Top leadership of State Bank of India, Federal Bank, South India Bank, ESAF Small Finance Bank and Muthoot Finance had participated in the seminar.