Deputy Governor of the Reserve Bank of India (RBI), M Rajeshwar Rao, has cautioned banks against compromising underwriting standards and risk pricing as they increasingly rely on fintech companies. Rao emphasized the importance of maintaining robust underwriting practices and appropriate risk assessment, speaking at the Investment Summit.
Rao highlighted the need for vigilance in ensuring that banks and non-banking financial companies (NBFCs) don’t lower their standards or improperly price risks when onboarding customers through fintech partners. The RBI is actively assessing existing models to determine how collaborations with fintech firms can enhance credit delivery while upholding risk management and underwriting standards.
Recent incidents, such as the RBI directing Paytm Payments Bank to cease deposit acceptance due to inter-related party transactions and instructing Federal Bank and South Indian Bank to halt issuing co-branded credit cards, underscore the need for regulatory oversight in bank-fintech partnerships.
While supporting responsible innovation, Rao stressed the importance of vigilance in monitoring the impact of new financial solutions on the market. He emphasized the need for regulatory harmonization tailored to specific risks associated with different financial entities and activities, aiming to prevent regulatory arbitrage.
Overall, Rao emphasized the RBI’s commitment to fostering innovation while ensuring the stability and integrity of the financial system.
