in encouraging thrift behaviour in the economy, helping it grow faster. it is possible that it may temporarily affect banks ’ net interest margins, especially in case of the high casa banks. yet, there is no reason to believe that these banks will not be able to make the necessary adjustment by better asset - liability management, reducing intermediation costs and providing more value added services to emerge stronger, resilient and efficient banks. at the same time, the low casa banks have an opportunity to grow and improve their scale economies turning indian banking into a more competitive space. i have been told by some bankers that the time for deregulation was perhaps not right as the npa cycle is on the upswing. we all know the truth that there never will be a completely appropriate time for such reforms. at least, today we have the comfort that banks have substantially got rid of the asset - liability mismatches that were created earlier by credit growth outstripping deposit growth. as regulators, our job is to support financial stability and the health of the banking system, but not to unduly protect banking business at the cost of welfare of those who consume financial services. intermediation costs in indian banking have stayed high. we need to develop new paradigm for creating a competitive edge in the indian banking that drives down intermediation costs. iii. 2 reduced barriers to entry to spur competition banks already operating in india need to prepare themselves for competition from new players as the barriers to entry are reduced. there is a need to extend the geographic reach of banking in hitherto under - banked areas and improve access to banking services for those who are hitherto excluded or inadequately served. the extant policy has been that industrial houses are not permitted to promote new banks. this had good logic in restraining the risks of connected lending that had created banking problems in a number of countries. in india, individual companies, directly or indirectly connected with large industrial houses were permitted to own only 10 per cent of the equity of a bank, but without any controlling interest. however, the reserve bank has now guided a more open regime but this regime would need to be developed with lots of checks and balances and not sacrificing the essential safeguard principles. the reserve bank has also guided that it would be open to more foreign banks coming into india through the wholly owned subsidiary route. reduced entry barriers and resultant increase in competition could be an important driver for existing banks to change. bis central bankers ’ speeches

. as i have enunciated earlier also, the overarching goal of the reserve bank is to ensure that risks to financial stability are minimised and contained, be it from a sector or an entity. 7 | page regulatory expectations 19. let me now turn to what we envisage as four key cornerstones which i feel not only nbfcs, but every financial entity needs to adopt to become a resilient, customer centric and responsible organisation contributing to economic growth of the country. responsible financial innovation 20. the non - banking financial space has been a hotbed of financial innovation. the inherent structure of nbfcs as an agile force makes them capable of and likely to experiment with innovative technologies and devise newer ways, methods, and vehicles to deliver financial products and services to every nook and corner of the country. the nbfcs have been in the forefront in the adoption of innovative fintech based products and services which are transforming the ways of carrying out credit intermediation and extending financial services. as an enabling regulator, the reserve bank has also been on the forefront of creating an environment for growth of digital technology. peer to peer ( p2p ) lending, account aggregator ( aa ) and digital - only nbfcs are cases in point where the regulations are helping the segment and entities to grow in a systematic and orderly manner. 21. however, point of caution here is that the innovation should not be at the cost of prudence and should not be designed to cut corners around regulatory, prudential and disclosure requirements. responsible financial innovation should always have customer at its centre and should be aimed at creating positive impact on the financial ecosystem and the society. one should therefore consider the impact of new ideas on the financial fabric at the conceptualisation stage itself. this is somewhat similar to the concept of evaluating the impact of business on the environment or greening the financial system but applies to every new innovative idea floated by buzzing entrepreneurial energy of financial entities. accountable conduct 22. second point which i wish to highlight is the imperative need for accountable conduct by financial entities. on the digital finance front, the pandemic gave us several 8 | page new learning points. during the pandemic there was surge in digital credit delivery, with lenders either lending through their own balance sheet and in - house digital modes or using third party apps to onboard customers. while the benefits accruing from digital financial services is not a point of debate, the business conduct