Lok Sabha Question No. 3468 (UNSTARRED), answered on 2018-03-16
Subject: Ecosystem for Fin Tech Companies
Ministry: FINANCE
Asked by: B. SREERAMULU, ANJU BALA, Tejpratap Singh,Yadav

## LOK  SABHA

## UNSTARRED QUESTION NO. 3468

## TO BE ANSWERED ON MARCH 16, 2018 (PHALGUNA 25, 1939 (SAKA))

## Ecosystem for Fin Tech Companies

## QUESTION

## 3468.  SHRI B. SRIRAMULU: SHRIMATI ANJU BALA: SHRI TEJ PRATAP SINGH YADAV:

Will the Minister of FINANCE be pleased to state:

- a) whether the Reserve Bank of India (RBI) has submitted a report for creating ecosystem for Fin Tech Companies in the country;
- b) if so, the details thereof including recommendations and action taken thereon;
- c) whether  the  Government  is  working  for  identifying  and  creating  a  roadmap  for infrastructure  for  India  to  become  a  global  FinTech  hub,  if  so,  the  details  thereof including current status of FinTech industry;
- d) whether there is need for addressing the challenges faced by the FinTech sector; and
- e) the steps taken by the Government for the growth of FinTech space in the country?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PON. RADHAKRISHNAN)

(a) & (b)     The Reserve Bank of India (RBI) had set up an inter-regulatory Working Group (WG) to look  into  and  report  on  the  granular  aspects  of  Fin  Tech  and  its  implications  so  as  to  review  and reorient appropriately the regulatory framework and respond to the dynamics of the rapidly evolving Fin Tech scenario. The report of the Working Group that inter-alia contains various recommendations has been released by RBI for public comments and is available at https://www.rbi.org.in. Key recommendations of the Report are annexed.

(c) to (e)  In pursuance to the announcement in the Budget Speech of 2018-19, a Steering Committee has been constituted under the Chairmanship of Secretary, Department of Economic Affairs (DEA) Ministry of Finance on 5 th March, 2018; to consider various issues relating to development of Fin Tech space in  India with a view to make Fin Tech related regulations  more flexible and  generate enhanced  entrepreneurship  in  an  area  where  India  has  distinctive  comparative  strengths  vis-à-vis other  emerging  economies.   The  Steering  Committee  will  also  focus  on  how  Fin  Tech  can  be leveraged  to  enhance  financial  inclusion  of  Micro,  Small  &  Medium  Enterprises (MSMEs).  The Terms of Reference of the Steering Committee include:

- i. To take stock of the developments in the Fin Tech sector globally, and in India, and arrive at a common shared understanding of the current state of play;
- ii. To analyse critically the regulatory regime spread over different entities that has impacted the growth of Fin Tech in India;
- iii. To  consider  how  Fin  Tech  can  be  leveraged  in  critical  sectors  of  the  economy,  especially financing  of  MSMEs,  affordable  housing,  delivery  of  e-services  to  vulnerable  sections, provision of land record management and other government services, access and adoption of digital payments, and to study the developments in these areas;
- iv. To  develop  regulatory  interventions,  e.g.,  regulatory  sandbox  model,  that  will  enhance  the role of Fin Tech in the sectors identified for focused interventions;
- v. To promote ease of doing business in the Fin Tech sector;
- vi. To consider means of using data with Goods and Services Tax Network (GSTN) and data residing with information utilities such as Credit Information Companies (CICs), etc in open domain with a view to developing applications for financing of MSMEs;
- vii. To work with Government agencies like Unique Identification Authority of India (UIDAI) to explore creation and use of unique enterprise identification number;
- viii. To consider international cooperation opportunities in Fin Tech with countries like Singapore, UK, China, etc.

LOK    SABHA  UNSTARRED  QUESTION  NO.  3468  ON  'ECOSYSTEM  FOR  FIN  TECH COMPANIES' PUT FORWARD BY SHRI B. SRIRAMULU: SHRIMATI ANJU BALA: SHRI TEJ PRATAP SINGH YADAV, TO BE ANSWERED ON MARCH 16, 2018 (PHALGUNA 25, 1939 (SAKA).

## Key recommendations of the report of the Working Group on Fin Tech and Digital Banking submitted to the Reserve Bank of India

-  There  is  a  need  to  have  a  deeper  understanding  of  various  Fin  Tech  products  and  their interaction  with  the  financial  sector  and,  thereby,  the  implications  on  the  financial  system, before regulating this space.
-  The regulatory actions may  vary from 'Disclosure' to 'Light-Touch Regulation  & Supervision' to  a  'Tight  Regulation  and  Full-Fledged  Supervision',  depending  on  the  risk implications.
-  There is a need to develop a more detailed understanding of risks inherent in platform based Fin Tech.
-  Various  financial sector regulators to identify  sector  specific  Fin  Tech  products  and regulatory approaches.
-  The  adoption  of  digital  channels  to  replace  manual  time-consuming  processes  to  empower customers and / or workforce in insurance sector.
-  Innovation labs may be established, including within insurance companies, to combine brand and product managers with technological and analytical resources.
-  As and when any securities market Fin-Tech products are introduced or emerge in the market, regulators may assess the product and see whether it can be monitored by way of registering them as an intermediary or through the activity regulations.
-  Insurance companies may collaborate with 'Insurtech' entities or start-ups to provide better customer experience in a cost effective manner.
-  Financial  sector  regulators  need  to  engage  with  Fin  Tech  entities  in  order  to  chalk  out appropriate  regulatory  response  and  with  a  view  to  re-align  regulation  and  supervision  in response to the changing environment.
-  In order to identify and monitor the challenges associated with the development of major Fin Tech  innovations  and  to  assess  respond  to  opportunities  and  risks  arising  for  the  financial system from these innovations,  a  'dedicated  organizational  structure'  within  each  regulator needs to be created.
-  To provide an environment for developing Fin Tech innovations and testing of applications/ application programming interfaces (APIs) developed by banks and Fin Tech companies.
-  An  appropriate  framework  may  be  introduced  for  'Regulatory  Sandbox/innovation  hub' within a well-defined space and duration where financial sector  regulators will provide the requisite  regulatory  support,  so  as  to  increase  efficiency,  manage  risks  and  create  new opportunities for consumers in Indian context similar to other regulatory jurisdictions.

-  In view of Institute for Development & Research in Banking Technology (IDRBT)'s unique positioning as a research and development institute, and as indicated by some of its activities, it  is  felt  that  IDRBT  is  well  placed  to  create  and  maintain  a  regulatory  sandbox  in collaboration  with  RBI  for  enabling  innovators  to  experiment  with  their  banking/payments solutions  for  eventual  adoption.  The  Institute  may  continue  to  interact  with  RBI,  banks, solution providers regarding testing of new products and services and over a period of time upgrade its infrastructure and skill sets to provide full-fledged regulatory sandbox environment. The Reserve Bank of India may actively engage with the Institute in this regard.
-  Regulatory and legal reforms are essential to enable the sustained development of a digital financial industry for the future.
-  Partnerships / engagements among regulators, existing industry players, clients and Fin Tech firms will enable the development of a more dynamic and robust financial services industry.
-  Regulators  may  explore  the  use  of  Reg  Tech  that  may  facilitate  the  delivery  of  regulatory requirements more efficiently and effectively than existing capabilities.
-  The  organizational  structure  and  human  resources  (HR)  practices  of  regulators  have  to  be reoriented  to  meet  the  challenges  of  innovation,  in  terms  of  adapted  HR  hiring  profiles, learning and educational programmes.
-  There is a need for a stand-alone data protection and privacy law in the country.
-  Banks  /  Regulated  entities  may  be  encouraged  to  collaborate  with  Fin  Tech/start-ups  to improve  their  customer  experience  and  operational  excellence.  They  may  also  consider undertaking Fin Tech activity in areas such as payments, data analytics and risk management.
-  Models  of  engagement  and  checklist  to  be  developed  by  each  regulator  for  each  of  the activities.
-  Given  that  Fin  Tech  companies  are  in  their  infancy  but  are  growing  at  a  rapid  pace,  the Government  may  consider  introducing  tax  subsidies  for  merchants  that  accept  a  certain proportion of their business revenues from the use of digital payments.
-  The  requirement  of  increasing  the  levels  of  education/  awareness  of  customers  should  be highlighted by all market regulators.
-  A self-regulatory body for Fin Tech companies may be encouraged.