Entities engaged in the financial sector must stick to what they have been licensed to do and venturing into businesses beyond that will involve seeking the appropriate licenses, the Reserve Bank governor said on Friday. of India (RBI), Shaktikanta Das.
“Our responsibility is to maintain financial stability. Companies must operate under the licenses granted to them. If they do anything beyond that, then they should ask our permission. Without permission, if they engage in activities for which they do not have a license, it is not acceptable,” Das said on the sidelines of a banking conclave organized by Bank of Baroda (BoB).
Unauthorized activity could lead to an accumulation of risk and the RBI cannot allow this, Das said. The governor’s remarks gain significance in light of the RBI’s June 20 letter to certain issuers of prepaid payment instruments (PPIs) prohibiting them from loading PPIs with lines of credit. The diktat dealt a blow to digital lenders, especially Buy Now, Pay Later (BNPL), forcing them to stop onboarding customers via prepaid cards.
Das said Friday that guidelines for digital loans will be released in the coming weeks and have been delayed due to the complexities involved. “It has taken longer than we originally expected, but the situation is so complex,” he said, adding that the RBI was trying to balance the two priorities of supporting innovation and maintain financial stability.
“We want to support innovation and at the same time we want the whole ecosystem to develop in an orderly and regulated manner so that there is no compromise on financial stability,” the governor said. of the RBI.
Following a furore over the excesses committed by digital lending apps in 2020, the RBI had set up a task force to prepare a report on the regulation of these apps. The group’s recommendations, published in November 2021, range from subjecting digital lending applications to a verification process by a nodal agency to dedicated legislation to prevent illegal digital lending activities.
The RBI has repeatedly spoken out against the growing presence of BigTechs in the Indian financial sector. The latest example was the June 2022 edition of the Financial Stability Report, in which the central bank said that as big tech companies grow and transform into institutions “too critical to fail “, regulators need to be aware of their links to the financial system.