Fintech Could Be A Substitute For Traditional Banking, Reveals RBI’s CAFRAL

The report titled, ‘India Finance Report 2023’, underlined the need for efficient and flexible regulation to ensure the growth of digitisation and financial stability.

The launch of the Unified Payment Interface (UPI) gave FinTech an efficient digital infrastructure, helping speed up the expansion and generation of new possibilities for financial inclusion across the country.

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The Indian fintech sector has the potential to replace traditional banking in the near future, a report by CAFRAL said. The Centre for Advanced Financial Research and Learning (CAFRAL) released its maiden flagship report titled, ‘India Finance Report 2023’ (IFR 2023), launched by RBI Governor Shaktikanta Das on Tuesday. 

The report underlined the need for efficient and flexible regulation to ensure the growth of digitisation and financial stability, reported PTI. CAFRAL is a not-for-profit organisation set up by the RBI as an independent body in 2011 to boost research and learning in banking and finance. 

RBI Deputy Governor, Michael Debabrata Patra, in his note to the report, said, “The publication is sensitive to the significant heterogeneity within NBFCs, issues in complementarity and competitiveness vis-à-vis the traditional banking sector and the growing synergies between NBFCs and FinTech.”

The report further provided a fresh perspective into the non-banking financial sector in the country that can facilitate all stakeholders involved in creating a better understanding of the sector, allowing for more appreciation for its strengths and opportunities. 

The report highlighted that India is undergoing rapid digitalisation. As such, digital lending and FinTech lending have also grown at a rapid pace. Additionally, the launch of the Unified Payment Interface (UPI) gave FinTech an efficient digital infrastructure, helping speed up the expansion and generation of new possibilities for financial inclusion across the country. 

The report further underlined that digital lending must be regulated to help its growth and enhance stability. “The strong relationship between UPI and fintech lending, especially during COVID-19 is testimony to the potential of digitalization. The fintech sector can potentially emerge as a substitute for traditional banking in the near future,” the report added. 

In his foreword for the report, the RBI Governor noted, “The NBFC sector is also going through changes in regulation and supervision that seek to bring in best practices; close out regulatory arbitrage; ensure the protection of customer interests; and leverage on technology. Exploiting the synergies between growth and technological change can lead to individual NBFCs becoming systemic.”