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Need to remain alert about financial service innovations: RBI – Times of India

MUMBAI: RBI deputy governor M Rajeshwar Rao said Saturday that technology and innovations can expand product offerings and financial services to underserved segments at lower costs, but the entry of new players, especially fintech firms, can alter the financial service provider landscape.
This can bring new challenges by influencing market concentration and competition dynamics, he said.
“RBI has always supported and encouraged responsible innovation. However, there is always the possibility of a trade-off between regulation and innovation. As regulators have an evolving financial landscape, we need to remain alert to the spawning of new ideas and trends in the markets and try and understand their scale and assess their potential to disrupt the markets and consider interventions where and if necessary,” he said at an event organised by Mint.
Rao’s comments come weeks after action by regulator on finance companies & Paytm Payments Bank. Unlike earlier, when RBI penalized regulated entities, the more recent action has been to bar them from business activity, hurting the entity’s bottom line and valuation.
Rao said many of the regulated entities are niche players with varying risk profiles and require differentiated regulatory treatment. RBI had tailored regulations for entities like payment banks and small finance banks to ensure intensity of regulations corresponded to identified risks, he said.
The deputy governor said that overregulation in any sector could lead to increased compliance costs, affecting efficiency and innovation amongst the market players. “The focus is on achieving a delicate equilibrium that addresses critical concerns without imposing undue burden on regulated entities. Principle of proportionality is synonymous with a nuanced strategy to ensure intensity of regulations correspond to identified risks,” he said.

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