September 3, 2019 2:58:36 am
To use technology to promote financial sector growth, an inter-ministerial panel on fintech has recommended measures including the Reserve Bank of India examining issuance of ‘virtual banking licences’, dematerialisation of fixed deposits, sovereign gold bonds and post office certificates to promote easy transactions and collateral, and the central bank mandating banks to share crucial customer data after consent.
In its report submitted to Finance Minister Nirmala Sitharaman Monday, the panel suggested putting in place a comprehensive legal framework to protect consumers of digital services.
“Banks are increasingly moving towards virtualisation of services. The Committee recommends that Department of Financial Services and RBI may examine the suitability of ‘virtual banking system’ in the Indian context, costs and benefits regarding allowing virtual banks and prepare for a possible future scenario where banks do not need to set up branches and yet deliver the full scale retail banking services ranging from extending loans, savings accounts, issuing cards and offering payment services through their app or website,” according to the report.
The Hong Kong Monetary Authority (HKMA) has recently issued guidelines for setting up virtual banks and is examining applications for virtual banking licenses.
The Steering Committee, headed by the then Economic Affairs Secretary Subhash Chandra Garg, also recommended adoption of regulation technology (or RegTech) by all financial sector regulators to develop standards and facilitate adoption by financial service providers. The committee suggested usage of fintech to improve access of financial products for MSMEs, farmers and poorer sections of the society.
It also suggested a significant change in the form of RBI adopting open data access approach for better delivery of products and services. “…RBI may consider making available banking data (such as transaction and account history data) for use by the financial sector, including fintech firms, (based on consumer consent and with other appropriate safeguards). It also recommends that all financial sector regulators study the potential of open data access among their respective regulated entities, for enhancing competition in the provision of financial services,” it said.
Following the deliberations of the committee, it was considered necessary to have a nodal agency to coordinate developments across ministries and regulators in the area of financial technology (fintech). A dedicated team on digital economy and fintech is being set up in the Investment Division, Department of Economic Affairs for coordination on fintech with relevant ministries, the Finance Ministry said. The committee was constituted following the announcement made by the then Finance Minister Arun Jaitley in Budget 2018-19. The panel has also recommended that insurance companies and lending agencies be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
Given the rapid pace at which technology is being adopted primarily by private sector financial services, the report said the Department of Financial Services (DFS) should work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks. Significant opportunities can be explored to increase the levels of automation using artificial intelligence (AI), cognitive analytics and machine learning in their back-end processes, it said.
Panel suggests user protection
Usage of financial technology for better delivery of products and services for a cross section of society — including MSMEs, farmers, banks and pensioners — is at the centre of many recommendation by a government panel. While suggesting measures to promote digital economy and fintech, the panel pitched for necessary legal framework to protect consumers of such services.
The committee also suggested digitisation of land records across the country on a war footing. The report favoured setting up of an Inter-Ministerial Steering Committee on fintech Applications in the Department of Economic Affairs (DEA) to monitor progress, including exploring and suggesting the potential applications in government financial processes and applications.
The panel suggested usage of common fintech platform for MUDRA loans, small saving schemes, pension schemes and provident fund. It recommended creating a common digital platform for all micro-pension schemes and government pension schemes, including EPF, through which pension subscribers can subscribe to specific schemes seamlessly and reduce access barriers by allowing payments through various modes such as Jan Dhan Yojana accounts, debit card, credit card, internet banking, mobile wallets etc.
To enable electronic service delivery in the financial services sectors, the panel suggested the Department of Legal Affairs to explore permitting digital alternatives in cases such as power-of-attorney, trust deeds, wills, negotiable instrument other than a cheque, any other testamentary disposition, any contract for the sale or conveyance of immovable property or any interest in such property.
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