Committee on Financial Technology Suggests Sweeping Reforms

On 2nd September 2019, the Steering Committee on Financial Technology (Fintech) has submitted its report to the Finance Ministry. 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 analyze it potential for enhancing the financial inclusion of micro, small and medium enterprises (MSMEs).

Important Recommendations of the Committee

1. Develop a Virtual Banking System: 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.
2. Payment Infrastructure Access to Non-Banks: The government and the RBI must 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.
3. Fintech for Cyber Security: Fintech should especially be used by Public Service Enterprises financial service companies to bolster cyber security, fraud control and anti-money laundering. Also, international fintech firms specializing in this field should be encouraged to set up their businesses in India.
4. Rope in NBFCs in Agriculture: Since the NBFCs had made significant progress in leveraging fintech to increase their outreach; such companies should be incentivized to work in the agricultural domain by including them in credit guarantee schemes by the government.
5. Develop Marketplace Lending Model: Debt financing in India should be improved by developing a marketplace model by reforming the current peer-to-peer (P2P) lending between banks platforms.
6. Ease Exposure Limits: 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.
7. Easing KYC Process: Various options, like video-based KYC, making available validated KYC documents through a DigiLocker, and making these available for verification by service providers with customer consent, be considered early.
8. Expedite Digitization of Land Records: Government should take up “on a war footing” was the digitization of land records and also recommended a deadline of three years within which this must be completed.

The report has stressed on the need to improve inter-ministerial coordination in the field of fintech upgradation and adoption. An inter-ministerial group on fintech should be formed at the Ministry of Electronics and Information Technology (MeitY), for exploring the application of the technologies like open application programming interfaces (APIs), block chain, robot-advisors, big data analytics, and national data sharing and accessibility policy for use in government processes like welfare, taxation, and handling citizen grievances.