Entry of big fintech firms in financial services poses systemic risks, says RBI Governor

RBI Governor Shaktikanta Das

The entry of big fintech firms into the financial sector can create systemic concerns, including those pertaining to overleverage, the central bank governor said on June 17.

“Large technology companies which have entered into the provision of financial services could potentially be another source of disruption to the financial system,” Shaktikanta Das said at an event in Mumbai. “Even the banks and other lenders are sometimes utilising platforms provided by fintech companies in their internal processes for credit risk assessment.”

Such large scale use of new methodologies in credit risk assessment can create systemic concerns like overleverage, inadequate credit assessment, Das added.

Overleveraging occurs when a business borrows too much money and is unable to pay interest payments, principal repayments, or maintain payments for its operating expenses due to debt burden.

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The big fintechs also pose risks related to competition, data protection, data sharing and operational resilience of critical services in situations where banks and non-banking finance companies utilise the services of big tech companies, he said. These concerns can also materialise in sectors other than financial services.

The provision of financial services through the digital channel, including lending via online platforms and mobile apps, have brought in issues relating to unfair practices, data privacy, documentation, transparency, conduct, breach of licensing conditions, etc, the governor said.

Authorities and regulators have to strike a fine balance between enabling innovation and preventing systemic risks. The RBI will soon issue suitable guidelines and measures to make the digital lending ecosystem safe and sound while enhancing customer protection and encouraging innovation, he added.