The Steering Committee on Fintech has submitted its report to the Finance Ministry, with recommendations on allowing the operation of virtual banks, easing KYC procedures, implementing fintech to prevent fraud and incentivising non-banking financial companies (NBFCs) to increase lending to the agriculture sector, among others.
The committee was formed in March 2018 under the chairmanship of the Economic Affairs Secretary to consider various issues relating to the development of the fintech sector in India, and how fintech can be used to enhance the financial inclusion of micro, small and medium enterprises.
“The committee recommends that the Department of Financial Services and the Reserve Bank of India 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,” the report said.
The panel had also urged the government and the RBI to take steps to eliminate any discrimination in access to payment infrastructure to non-banks as compared to banks, with a view to enhance competition and innovation.
“The committee recommends the use of fintech, especially by PSE [public sector enterprise] financial service companies to bolster cybersecurity, fraud control and anti-money laundering,” the report added. “The committee also recommends that fintech firms specialising in this field should be encouraged to set up their businesses in India.”
Further, it said that since the NBFCs had made significant progress in leveraging fintech to increase their outreach, such companies should be incentivised to “work in the agricultural space by including them in credit guarantee schemes.”
Notably, the committee also recommended improving debt financing in India by developing a marketplace model by reforming the current peer-to-peer (P2P) lending platforms. “Potential hindrance in terms of restrictions on overall and individual exposure limits may be reviewed and options like allowing Mudra Bank to directly fund or co-fund SMEs and MSMEs through P2P platforms may also be examined as an alternative credit delivery channel,” the report said.
In a bid to ease the KYC process, the committee recommended that various options, including video-based KYC, making available validated electronic versions of KYC-related documents through a DigiLocker, and making these available for verification by service providers with customer consent, be considered early.
“The Committee recommends that insurance companies and lending agencies in the agri sector should be encouraged to use drone and remote sensing technology, directly or using services of fintech companies, to assess discrepancies in self-reported cropping patterns and crop cutting experiment processes, enabling more efficient delivery of both credit and insurance products and reduce credit/insurance risks,” the report added.
Another recommendation the Committee said the government should take up “on a war footing” was the digitisation of land records and also recommended a deadline of three years within which this must be completed.
Regarding consumer protection, the Committee said that a legal framework for consumer protection should be put in place early keeping in mind the rise of fintech and digital services, and also said a law must also be enacted for this.
To further ease access to pension schemes and small savings schemes, the committee recommended that a common digital platform be created for all micro-pension schemes and Government pension schemes 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 cards, credit cards, internet banking, mobile wallets, etc.
“In order to expand the reach of small savings schemes, provide ease of access and transactions to consumers, reduce risk of frauds, enable trading in secondary markets, etc, the Committee also recommends that all small savings products, which are neither accessible online nor available in demat form, should be brought on a common online platform in demat form,” the report added.
