Category: Speeches

Ladies and Gentlemen,

A very warm good morning to you in Brasilia with the hopes and prayers that all of you remain safe and healthy from the clutches of the pandemic that is still raging amongst us. I am grateful to His Excellency, Shri Suresh Reddy, Ambassador of India in Brazil for extending this kind invitation to interact with you all in this futuristic but extremely relevant topic of Open Banking².

1. The modern world has become increasingly interconnected with mobile phones and handheld devices with internet connection enabling ubiquitous access and broader reach to information, services, and products. While technology is the omnipresent enabler in all modern human endeavours, it harnesses a disruptive power challenging the well-proven business models, opening new markets, while blurring the boundaries of geographical segmentation.

2. Technology has enabled and indeed empowered banks and financial firms to penetrate hitherto untouched market segments which have remained beyond the reach of formal financial systems and players despite significant progress in financial delivery methods. In the recent years, technology driven modes of financing, new financial business models, specialized financial services and products are emerging and driving FinTech innovation in areas such as P2P lending, wealth management, microfinance, smart-contract, AI/ML based decision analysis systems and robo-advisory, etc. and have started to shape the regulatory engagements and discourse. Integral to this discourse are the issues concerning data sharing, data access and to a large extent data democratisation.

3. The financial plumbing that once extensively focused on payments channels and transactions, now also looks to accessing the financial data of consumers. Digital exchange of financial data can become the building block for new emerging service models, removing inefficiencies in the system and opening new product possibilities. Therefore, regulators and national authorities are beginning to acknowledge the fact that enabling a simplified framework for financial information data exchange has the potential to transform the financial systems and may lead to product innovation and better facilitation of financial services for customers and end-users. Therefore, the financial data access and distribution has significant implications not only for the concerned stakeholder institutions but also for future economic growth.

4. An individual’s financial data is normally fragmented and spread across in the silos of data warehouses of financial institutions, government bodies and in some cases regulators. Though there exists some sort of formalised frameworks for seamless, safe, and swift data sharing between financial information providers (FIPs) and financial information users (FIUs), there still exists a void in terms of legally enforceable and permitted integrated solutions to aggregate user data for a seamless, wide-ranging picture of the financial history and transactions of the individuals and firms. Consequently, this vast amount of fragmented information is not being effectively optimised to identify and address financial needs and provide comprehensive service delivery to end-users.

5. In this regard, a BCBS study report³ has observed that while sharing of bank-held, customer-permissioned data with third parties has been taking place for several years, increased use of digital devices and rapidly advancing data aggregation techniques are transforming retail banking services across the globe. This sharing of customer-permissioned data by banks with third parties is leveraged to build applications and services that provide faster and easier payments, greater financial transparency and options for account holders, new and improved account services, as well as additional marketing and cross-selling opportunities.

6. Such initiatives also raise the issue of whether financial institutions as holders of data of individual customers should act only as agents and whether they should have ownership stake driven by commercial considerations. It is quite clear that the right to data accessibility and usage should vest in the owners of data rather than the holders of data. Apart from this data democratisation, there are major concerns around transportation and storage of data in safe and secured manner enveloped within a consent-based architecture. Different jurisdictions are currently trying to address this need for a framework that allows efficient and secure navigation and enables use of customer’s financial data through different methods; for example, by allowing use of open API frameworks within financial institution’s user applications. In India, we too have envisioned a similar ecosystem of account aggregators (AAs) to broaden the scope of financial data sharing.

Let me dwell briefly on the Indian context:

Open Banking Initiatives in India

7. Globally, open banking regulatory frameworks are structured to enable third party access to customer-permissioned data, requiring licencing or authorisation of third parties, and implementing data privacy and disclosure and consent requirements. Some frameworks may also contain provisions related to whether third parties can share and/or resell data onward to “fourth parties”, use the data for purposes beyond the customer’s original consent and to whether banks or third parties could be remunerated for sharing data. Open banking frameworks may also contain expectations or requirements on data storage and security.

8. India has kickstarted its approach to Open Banking by enabling an intermediary which will be responsible for the customers’ consent management. These intermediaries are licensed as Non-Banking Financial Companies. In September 2016, RBI announced creation of a new licensed entity called Account Aggregator (AA) and allowed them to consolidate financial information of a customer held with different financial entities, spread across financial sector regulators. In India, AA acts as an intermediary between Financial Information Provider (FIP) such as bank, banking company, non-banking financial company, asset management company, depository, depository participant, insurance company, insurance repository, pension fund etc., and Financial Information User (FIU) which are entities registered with and regulated by any financial sector regulator. The flow of information takes place through appropriate Application Programming Interfaces (APIs).

9. The transfer of such information is based on an explicit consent of the customer and with appropriate agreements/ authorisations between the AA, the customer, and the financial information providers. Data cannot be stored by the aggregator or used by it for any other purpose. Explicit and robust data security and customer grievance redressal mechanisms have been prescribed and the Account Aggregators are not permitted to undertake any other activity, primarily to protect the customers’ interest.

Consent based architecture

10. The emphasis of regulatory framework for account aggregators in India is thus on explicit customer consent for data sharing. No financial information of the customer is to be retrieved, shared, or transferred without the explicit consent of the customer. The other tenets of this open banking initiatives in India are – financial data integrity, security & confidentiality, robust IT governance & controls, and strong customer protection & grievance redressal mechanism. Further, in order to facilitate seamless movement of data & consent-based sharing of financial information in the AA ecosystem, a set of core technical specifications have been framed by Reserve Bank Information Technology Private Limited (ReBIT), a wholly-owned subsidiary of the RBI for adoption by all regulated entities, acting either as Financial Information Providers (FIP) or Financial Information Users (FIU) in November 2019.

11. In order to protect critical financial information of users and to enforce a mechanism for obtaining proper consent from customers, the consent of the customer to be obtained by the Account Aggregator shall be a standardised electronic consent format as prescribed under regulations. The AA is required to inform the customer of all necessary attributes to be contained in the consent format and the rights of the customer to file complaints. The customers are also provided a functionality to revoke consent post which a fresh consent would have to be obtained. Explicit onus has also been placed on Financial Information provider (FIP) to verify – validity of the consent, specified date and usage of it and the credentials of the AA.

12. Different jurisdictions have taken a different approach on the issue of Open Banking. While some have adopted a prescriptive approach, requiring banks to share customer-permissioned data and requiring third party users to register with regulatory authorities, others have taken a facilitative approach by issuing guidance and recommended standards, and releasing open API standards and technical specifications. Some jurisdictions also appear to be following a market-driven approach, currently having no explicit rules or guidance.

13. The AA is a regulatory initiative in India under a hybrid model which is a combination of prescriptive & facilitative approaches and is in its early stages of development. One of the key things to look out for is whether the market forces will drive the adoption of this initiative or further regulatory nudge will be required. The pace of adoption will also depend on the strength of the community to come together and continue to drive the technical specifications standards and scalability potential.

Now, to continue with the tradition of a central banker and regulator, let me also enunciate few risks and spread some words of caution along the way.

Risks associated with Open Banking

14. Open banking may offer benefits in the form of convenient access to financial data and services to consumers and streamlining some costs for financial institutions. However, it also potentially poses significant risks and concerns around:

• Financial privacy and data security: In open banking frameworks, risks associated with the loss or theft of personal data on account of poor security, data protection violations, money laundering, and terrorist financing concerns cannot be ruled out. Therefore, large scale adoption of open banking frameworks should ideally be preceded by strong data protection and privacy laws. Such laws should anchor the ownership rights and ensure control and consent-based use of the data. They should also establish the boundaries of rights and obligations of third-party use, down-streaming of data to fourth parties and reselling it. India has already embarked upon the same and The Personal Data Protection Bill, 2019 has already been introduced. The Bill seeks to provide for protection of personal data of individuals and establishes a Data Protection Authority for the same.

• Customer liability: In absence of explicit arrangements for redressal of customer grievances and limiting their liability in case of erroneous or fraudulent activity, the acceptability of open banking frameworks may remain limited. Therefore, the jurisdictions should look to address customer liability for third party access of data through customer protection or indemnity laws. RBI has issued Charter of Customer Rights in December 2014 which lists ‘right to privacy’ along with ‘right to grievance redress and compensation’ among others. The right to privacy requires that customers’ personal information should be kept confidential unless they have offered specific consent to the financial services provider or such information is required to be provided under the law or it is provided for a mandated business purpose.

• Cybersecurity and Operational Risks: Use of open banking architectures, which is premised on the enhanced sharing of data, increases the surface area for cyber frauds. As the open API provides uncluttered access to customer banking data such as transactions and balance stored within the infrastructure, it may also pose a severe cybersecurity risk. Losses caused to customers on account of cyber events would require financial institutions to compensate customers for such losses. Institutions may also face a variety of potential operational and cyber security issues related to the use of APIs, including data breaches, misuse, falsification, denial of service attacks and infrastructure malfunction.

• Compliance and Reputational Risk: While open banking expands vistas of traditional banking and offers unique business opportunities, it also reposes extreme responsibilities with respect to compliance with applicable prudential regulations and privacy laws. Risks arise due to exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements due to omissions and commissions of the third-party service provider.

• Grievance Redressal: With more parties and intermediaries involved in the provision of financial services in an open banking model, it is more difficult to assign liability. If the regulations governing customer grievance redressals are not updated to take open banking business models into consideration, the national authorities may find it difficult to provide the customers adequate levels of protections. In India, RBI has implemented a separate Ombudsman Scheme for Digital Transactions in January 2019. The number of complaints received under the Ombudsman Scheme for Digital Transactions (OSDT) have been consistently increasing reflecting increased adoption of digital modes of banking.

15. In addition to the above, open banking frameworks also present regulators with many challenges. In open banking, there can be wide-ranging third-party arrangements such as fintech firms, intermediary firms engaged in data aggregation and other service providers which may not have a contractual agreement with the bank over which regulators can exercise jurisdiction. Further, it may be possible that several of these firms may not fall under regulatory purview of any financial sector regulator. In such situations, it may become difficult for regulators to set requirements, specifications, and exercise regulatory jurisprudence.

16. In many jurisdictions, including India, outsourcing arrangements for banks and other regulated entities are covered under explicit regulations. Supervisors also have certain amount of oversight over the third-party entities. If the relationships in the open banking extend beyond the existing supervisory and regulatory perimeters, the enforcement of standards and prudential policies may become difficult.

Conclusion

17. Open banking is a potential disruptor in financial system and may change the way of doing banking for both- customers and banks. New pure tech-play entities have the potential to snatch market share from established but traditional financial institutions because they are technologically more advanced, digitally agile to cater to customer needs with higher efficiency, have better user interface, and are more competitive in pricing.

18. In contrast to the Open Banking initiatives witnessed in some countries, India has embraced an approach where both the Regulator and the market have collaborated for the development of the Open Banking space. In India, RBI and NPCI came out with a payment system like UPI and released its API for the banks and third-party app providers to build upon. The market participants are also driving innovation and many banks are releasing their own APIs and joining forces with the fintech companies to provide better experience to their customers. Moreover, with the launch of Regulatory Sandbox and Reserve Bank Innovation Hub, RBI’s approach has been that of encouragement and guidance.

19. At the same time, all stakeholders need to appreciate the fact that while technological innovation is of paramount importance, the customer privacy and data protection are non-negotiable. We must generate trust amongst the customers that their data is safe and secure in all their financial relationships with regulated entities and for that – innovation and regulation should go hand-in-hand. Regulators and Supervisors should also gear-up for the future challenges. Afterall, as the saying goes for (Regulators)….. “while they can overlook the weather of the day, they cannot ignore climate of the era”.

Thank you.

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April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next

A very warm good morning to you all. It is indeed an honour for me to be here at the India Economic Conclave 2021 organised by the Times Network. I have been looking forward to participating in this year’s conclave, especially after an enriching experience during my participation in this event in 2019. The theme of this year’s conclave, one which resonates very strongly is “India’s Decade: Reform. Perform. Transform.” The COVID-19 pandemic has set forth the wheels of transformation for everything around us, from our work life to our policy priorities. As we toil towards addressing the challenges raised by COVID-19 with the aim to emerge as a modern and transformed India, I applaud the foresight of the Times Network in selecting such a pertinent theme.

2. Today in my address, I have chosen to speak on a subject in which the Reserve Bank has a major stake – “financial sector in a new decade”. Contextually, it is important to bear in mind that unlike the global financial crisis (GFC) of 2008 when financial sector vulnerabilities impacted the real sector, this time the risk of contagion is from the real sector to the financial sector.

Global Perspective

3. Globally, the measures initiated in the last decade after the global financial crisis were aimed at reducing leverage and improving the quality and quantity of capital, among others. As a result, before entering the Covid pandemic, banks were well capitalised and maintained high liquidity buffers, which – coupled with loan moratorium and asset classification freezes – helped them to stay resilient during these tough times. Measures taken by central banks and national governments such as reducing policy rates; capital, liquidity and regulatory relaxations; asset purchases; forex swaps; and government guarantees, among others, played a crucial role in preventing heavy sell-offs and protecting bank balance sheets. This collective endeavour resulted in stabilisation of the financial sector and provided necessary liquidity support to maintain the flow of credit in the economy. The rapid progress in vaccine has upgraded the global outlook although we are not out of the woods yet as fresh waves of newer variants of the virus bring in fresh concerns. While the global economy continues to reel under the impact of this unprecedented shock, the near-term financial stability risks have been contained on account of coordinated interventions of central banks across the globe.

4. The present pandemic underlines the imperative of strong capital buffers in the banking system. While the capital reforms undertaken post GFC did provide space to cushion the immediate impact of the current pandemic, banks would need to shore up their capital position, both to absorb some of the slippages as well as to sustain credit flow, especially when monetary and fiscal measures unwind. While part of the global regulatory reform agenda is still under implementation, the pandemic provides an opportunity to test and evaluate the efficacy of various reform measures. The learnings from the crisis could throw up new focus areas to be addressed in the design of the international regulatory architecture for banks and other financial sector entities.

Indian Context

5. In the Indian context, maintaining the health of the banking sector remains a policy priority. As I have stressed on several earlier occasions, the strength of a banking system depends on building its capital base while at the same time focusing on corporate governance and ethics-driven compliance culture. Banks and NBFCs need to enhance their skillset to identify risks early, measure them, mitigate the risk proactively and build up adequate provisioning buffers to absorb potential losses. They should also augment their internal stress testing framework with severe but plausible stress scenarios. Upgradation of IT infrastructure and improving customer services together with cybersecurity measures are other key issues which also need attention.

6. On our part, we have reorganized RBI’s supervision of banks, non-banking financial companies (NBFCs) and urban co-operative banks (UCBs) under one umbrella and initiated a series of measures to strengthen supervisory oversight on these entities. Our focus is more on early identification of risks, putting in place a structured early supervisory intervention framework and increasing the focus on root causes of vulnerabilities than on symptoms. We are also harmonising the supervisory rigour across banks and NBFCs.

7. The Reserve Bank has also been taking steps to provide all round support to improve the resilience of these sectors. Apart from liquidity support through targeted long-term repos (TLTRO) and special liquidity support windows, other measures included priority sector classification benefit to banks’ lending to NBFCs for on-lending to priority sector, promoting co-lending model, harmonisation of exposure limits for banks’ exposure to NBFCs under the large exposure framework, synchronisation of risk weights for exposures of banks to rated NBFCs with those of corporates, and relaxations for minimum holding period for securitisation and assignment. We have also strengthened the liquidity risk management framework with the introduction of granular maturity buckets and glide path for introduction of liquidity coverage ratio (LCR) for NBFCs. To augment risk management practices, a functionally independent Chief Risk Officer (CRO) with clearly specified roles and responsibilities was mandated for large NBFCs. The guidelines for Core Investment Companies (CICs) were revised in August 2020 with a view to address complexity and multiple leveraging, strengthen risk management and corporate governance practices, and induce transparency through disclosures. The revised regulatory framework for Housing Finance Companies (HFCs), issued in October 2020, aimed at harmonising the regulations between HFCs and NBFCs in a non-disruptive manner. Further, keeping in view the increasing significance of NBFCs in the financial system, we are in the process of finalising the guidelines on their dividend distribution and scale based regulation.

8. The UCBs are registered as cooperative societies and have been under the dual regulation of the Reserve Bank and the Central/State Registrar of Cooperative Societies (RCS). The recent amendments to the Banking Regulation Act, 1949 (as applicable to Cooperative Societies) has brought the functions of governance, capital, audit and amalgamation of co-operative banks under the regulatory domain of the Reserve Bank. In the recent period, we have been taking measures to improve their governance structure, implement system-based asset classification norms, bring them into the CRILC¹ reporting infrastructure and under the supervisory action framework (SAF). Last month, we have set up an expert committee to examine these issues and provide a road map for strengthening the UCB sector.

Banking sector: Way Ahead

9. The Reserve Bank is striving towards a more competitive, efficient and heterogeneous banking structure. The licensing policies for universal banks, small finance banks (SFBs) and payments banks are a step in this direction. Presently, ten SFBs and six payments banks are operational.

10. I foresee four distinct sets of banking landscapes emerging in the current decade. The first set will be dominated by a few large Indian banks with domestic and international presence. Second, there will be several mid-sized banks with economy-wide presence. The third set would encompass smaller private sector banks, SFBs, regional rural banks and co-operative banks, which may specifically cater to the credit requirements of small borrowers. The fourth segment would consist of digital players who may act as service providers directly to customers or through banks as their agents or associates. In fact, digital players would increasingly emerge as critical pieces across all segments.

11. Let me now dwell upon the interplay and synergies that could be exploited by these four segments while they compete with each other to move up the ladder. Each of these segments needs to comprehend the future needs of the society and respond to the growth in the Indian financial sector. IT systems need to be developed to handle the exponential surge in the number of transactions. The example of Unified Payments Interface (UPI) which took three years’ (2017-2019) to register a monthly count of 1 billion transactions, but doubled to 2 billion a month in a short span of another year clearly stands out. This demonstrates the need for scalability of systems and platforms in such a way that it can be easily scaled up, not ‘incremental scalability, but ‘exponential scalability’.

12. India is on the way to becoming Asia’s top financial technology (FinTech) hub with 87 per cent FinTech adoption rate as against the global average of 64 per cent. The FinTech market in India was valued at ₹1.9 trillion in 2019² and is expected to reach ₹6.2 trillion by 2025 across diversified fields like digital payments, digital lending, peer to peer (P2P) lending, crowd funding, block chain technology, distributed ledgers technology, big data, RegTech and SupTech, to name a few. In a world where the FinTech companies are leading in terms of the volume of digital transactions and playing a more active role in the banking and finance industry, it is important that the commercial banks adapt to the technological changes and work in tandem with these entities so that in future they are part of the ecosystem rather than competing with Fintech companies for business. A meaningful collaboration and co-existence in providing affordable and efficient value-added services would help both the worlds.

13. From the regulatory perspective, it is RBI’s priority to foster effective regulations with continuous knowledge acquisition so that we stay ahead of the curve. The Reserve Bank’s endeavour is to ensure that the regulations do not constrain innovation; rather they should encourage and nurture innovation, without compromising the need for financial sector stability, cybersecurity, customer protection, etc. Optimality in regulation and supervision is the key. With this objective in mind, we have recently constituted a working group on digital lending, including lending through online platforms and mobile apps. Overall, an orderly growth of Fintechs will benefit all the stakeholders in the financial sector.

Financial Sector and Payment System – Lifeline of the Economy

14. While we are on Fintech and technology, it would be extremely relevant to touch upon the developments in our payment systems where India has shown remarkable progress in recent years. As the adage goes “the best way to predict the future is to create it” and at the Reserve Bank, this is our unwavering approach when it comes to the future of payment systems. With our commitment to foster innovation, and provide state-of-the-art and safe experience to users, we have placed ourselves in the forefront of payment systems on a global stage. India has emerged as one of the leaders when it comes to payment systems; perhaps akin to the recognition in the COVID vaccine front. Sustaining this position is both challenging and exciting.

15. The growth rate of Indian payment systems has been phenomenal, creating new records with each passing day. Digital payments volume in India increased at a compounded annual growth rate of over 55 per cent in the past five years from 5.9 billion in 2015-16 to 34.3 billion in 2019-20, almost six times in 5 years. Retail payment systems such as the UPI and Aadhaar Enabled Payment Service (AePS) have changed the entire dynamics of retail payment systems as they are being used at every nook and corner of the country. Last year when many other nations were writing cheques to provide stimulus to the people, we, in India, processed 274 crore digital transactions to provide Direct Benefit Transfer (DBT) to the people straight into their bank accounts.

16. 24×7 and interoperability are two key aspects that are the hallmarks of our payment systems and it would continue to be so. Interoperability is sine-qua-non if the existing infrastructure has to be leveraged to its optimum use. RBI’s recent initiative in setting-up a Payment Infrastructure Development Fund (PIDF) to expand the reach of digital payments infrastructure into less penetrated regions is aimed at making payments more inclusive. The emphasis of the Reserve Bank is on operationalising all our payment systems round the clock, 365 days a year and I am happy to say that with 24×7 NEFT and RTGS systems, we are among a few countries that provide the facility to transfer any amount at any point of time.

17. The success of UPI in India has attracted immense admiration from the international community and several countries across the globe have expressed interest in developing a system on similar lines which could provide a basis for stronger bilateral business operations and economic partnerships. The UPI system also has the potential to unfold into a cheaper and faster alternative to available means for multilateral cross-border payments as well. It would be appropriate to mention that our RTGS also has multi-currency capabilities and with 24×7 operations now, there is a scope to explore whether its foot-prints could be expanded beyond India. With the Reserve Bank at the forefront of nurturing innovation, the day is not far, when we will experience cheaper, faster and safer cross border remittances. Also, the indigenous Rupay card network has shown astounding growth across strata and has a significant market share. With Rupay having international presence, our home-grown card network could make a mark in the global financial landscape, going forward.

18. The Reserve Bank is intensively involved in developing an ecosystem, which would not only nurture the future technologies, but also stimulate the technological aspirations of the financial community. On these lines, to enable the growth of FinTech in India, the Reserve Bank in August 2019 entered into the elite class of select few countries which have their very own regulatory sandbox ecosystem, where any regulated or unregulated entity can come and live test their innovative products or services in a controlled environment. This is a collaboration between the regulator, the innovators, the financial service providers and the end users (customers) which would ensure that Indian consumers continue to receive the best in class financial services. The responses to the 1st Cohort on “Retail Payments” and the 2nd Cohort on “Cross Border Payments” were encouraging. Additionally, the Reserve Bank has also created our own Innovation Hub (RBIH). This hub will collaborate with financial sector institutions, technology industry and academic institutions for exchange of ideas and development of prototypes related to financial innovations. The Bank for International Settlements (BIS) and several central banks have also set up such hubs to stay ahead of the curve in technology absorption.

19. While doing all these, we need to be watchful of the risks associated with certain technological innovations. That being said, while we are working on introducing a digital version of the fiat currency, the Reserve Bank is also assessing the financial stability implications of introducing such a Central Bank Digital Currency (CBDC). As the underlying technology is still developing, we are exploring ways for a clear, safe and legally certain settlement finality, which is most crucial for a secure and efficient payment system. It also needs to be appreciated that there are not many practical instances of operationalisation of CBDC across the world; this calls for utmost precaution so that we can produce a safe and robust model.

20. Enhancing cyber resilience is another important aspect when it comes to digital innovations. As we are expanding our operating hours and allowing for increased access and increased interoperability, there are persisting threats of cyber-attacks to our systems. Experience shows that even the most efficient and protected systems can get compromised which could expose stakeholders to disproportionate risks. The Reserve Bank is constantly creating awareness of such incidents and encouraging banks and non-banks to establish and maintain capabilities to avert such attacks. One must also know how to ring-fence such attacks when they occur and swiftly repair and restore the systems to normalcy. Cyber crisis proofing of systems by undertaking periodic tests as well as drills is essential.

21. With increased digitisation and development of FinTech, the traditional ways of credit evaluation are expected to be replaced by new-age credit evaluation methods that focus on a slew of non-financial and reliable transactional data. Many FinTech firms have already adopted such an approach but it is expected that in times to come, this may become more mainstream than remaining a niche. This will further facilitate the cause of financial inclusion. At the same time, however, it throws up a host of new challenges in terms of concerns of data privacy, consent, and security. Ethical behaviour of stakeholders in the payments value chain is important to surmount these concerns. Ability of financial sector entities to respond to these challenges may become a key factor in the determination of their competitive advantage.

Concluding observations

22. In the dynamic world of financial services, and more so after the pandemic, FinTech is expected to challenge the financial sector with innovations and its exponential growth. Harnessing FinTech for customer services will effectively control costs and expand the banking and non-banking businesses. The increased use of digital payments brought about by COVID-19 could fuel a rise in digital lending in the current decade as companies accumulate consumer data and enhance credit analytics. This in turn presents new and complex trade-offs between financial stability, competition and data protection; thereby, warranting new regulatory frameworks and novel ways of monitoring. It is imperative for the financial sector regulators to monitor global developments and formulate policy responses to the risks and the opportunities.

23. Going forward, banks need to address the financing needs of new sunrise sectors without undermining the traditional sectors of the economy. This conclave gives us an opportunity to look back on what has been accomplished and deliberate on what still needs to be done. I wish to reiterate that we at the Reserve Bank are fully committed to use all our policy tools to secure a robust recovery of the economy from the debilitating effects of the pandemic. The Reserve Bank remains devoted to build an enabling environment to develop the financial sector and create necessary preconditions for growth while preserving financial stability.

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What is your assessment of the economy?

Growth impulses are gradually and steadily getting broad-based. The high-frequency indicators such as steel consumption, PMI for manufacturing and services are expanding, GST collections and e-way bills are showing improvement. Earlier, there was an impression that it was due to pent-up and festival demand. But now, it is genuine demand that is visible. The vaccination drive is giving greater confidence to consumers, so the demand is expected to sustain.

The only downside risk is the recent spike in the number of Covid cases in certain parts of the country. With daily vaccination numbers going up, we should be able to contain a further spike. But we need to be watchful. International crude and commodity price increase renders some amount of uncertainty, not just to the process of revival in India, but globally, which can have an impact. There is always a demand-supply balance that plays out in the commodity space.

Is credit flow an area of concern?

Overall credit growth has now crossed 6% after remaining low for a prolonged period.Deposit growth (YoY) is around 11.5%. Credit in the retail sector is picking up. What needs to pick up is loans to industry and manufacturing. The benign financing conditions resulting from RBI’s action in reducing interest rates and making liquidity available in abundance have been utilised by corporates to raise money and deleverage their balance sheets. There was a lot of repayment of previously availed high-cost loans.

There is space in their balance sheets to invest. According to our monetary policy statement, capacity utilisation is around 63%, which is an improvement over previous months. Once capacity utilisation starts picking up and with all the positive trends on growth, and the scope for leverage, there should be more credit offtake by corporates and businesses in the months to come. There is enough credit available for any business with a good proposal and a good balance sheet.

Do higher commodity prices and hardening rates limit your ability to cut rates?

Interest rates are in the domain of the monetary policy committee (MPC). The hardening of bond yields currently is an international phenomenon. But what is important to note is that communication from almost all central banks is quite similar. Every central bank is on the same page in terms of commitment to support the process of economic revival, avoid any premature withdrawal of liquidity and avoid premature tightening of monetary policy.

What can be done to carry the process of government borrowing smoothly given the high bond yields?

The RBI remains committed to implementing the government’s borrowing programme in a non-disruptive manner. Some questions have been raised about the size of borrowing. Next year (2021-22), the gross borrowing is around Rs 12 lakh crore, the net is around Rs 9 lakh crore. In the current year, we have done open market operations (OMOs) of Rs 3 lakh crore and next year also we will do Rs 3 lakh crore, or more, depending on the situation.

We have extended the held-to-maturity dispensation, which opens the space for another Rs 4 lakh crore. Against the net borrowing requirement, already Rs 7 lakh crore is on the table. As for the gap and state government borrowings, we have assured the provision of ample liquidity in the system.

One important signal in our latest Operation Twist notification is that we are injecting liquidity via OMO purchase of Rs 20,000 crore but we are taking back Rs 15,000 crore through the sale of short-term securities. This is a change from our earlier position. We are signalling that RBI will support the market with adequate liquidity at appropriate places, where required. We are injecting liquidity at the longer-end of maturity.

The actions of the central bank should be read from its communication, its actions, and its signals. The latest notification is an action plus a signal. I have already said the yield curve is a public good and there should be an orderly evolution of the yield curve because every market participant is a stakeholder. The US Fed has also recently said the yield curve cannot be disorderly. Again, you can see all central banks are almost on the same page.

Crude prices are rising and retail fuel prices are at historic highs in India. What are your views on tax cuts by the government?

The tax cut has to be a coordinated action by the Centre and the states. International crude prices have touched $67-68 per barrel, while they were around $70 just before Covid hit. It’s a very dynamic sector and if prices harden further, shale should hit the market and that can have a sobering role.

Is it time to look at GST?

It is provided for in the Constitution. It is for the GST Council to take a call. It is desirable in the medium or long term, but its implementation may involve some revenue sacrifice initially by the Centre and the states.

The inflation target is up for review. Your views?

It has to be consumer price inflation. It’s the pattern world over. Inflation management is very important for the common man, especially the poor. A reasonable level of inflation is good for the economy. A stable inflation framework and a stable inflation outlook and anchoring of inflationary expectations help in attracting investment, both domestic and foreign. Work done by the RBI research team shows that inflation over 6% can be negative for growth.

How does one save the savers in a falling interest rate scenario?

For savers, the first thing to be checked is inflation because if inflation goes very high, then obviously the real return for the saver gets reduced. Therefore, the first thing is to have inflation within the target range; ideally, it should be 4% but depending on exceptional situations as we had in the Covid times, the MPC decided to tolerate inflation of about 5% or a little above 5%.

That is because the situation demanded it and you could not have prematurely gone for a tightening of the rates. Inflation did go up for a certain period but has now started moderating. Second, we have reduced the policy rates from 6.5% to 4%, which in the history of RBI is one of the lowest. Therefore, when the rates have come down there is an issue for savers. It is for banks to evolve the products. With regard to small savers, I would like to say that various instruments under small savings schemes are available.

Is there a need to look at some sort of a penalty mechanism for banks for technical glitches which hurt consumers?

We are constantly evaluating the technology of banks. It is very important that they should continue to invest in technology. An increase in the asset side of banks, an increase in loan books should be accompanied by simultaneous investment in technology. In fact, investment in technology should precede the expansion of the business of banks. You have to have the capacity to deal with a wider volume of operations and that is also something which we examine as part of our supervision. We have an enforcement system whereby such lapses can attract supervisory action and/or monetary penalties. These sorts of actions are already being taken. From time to time, we levy monetary penalties on individual banks for lapses, including technology failures.

Recently, we have issued guidelines for introducing a system of disincentives for banks under the ombudsman scheme. If grievance resolutions are delayed, there will be a penalty in the form of recovery from banks of the cost of handling complaints under the banking ombudsman scheme. This is expected to act as a disincentive. It is not the quantum, but it is the signal. We are giving the highest importance to technology and we will not hesitate to take any action as may be warranted to see that technology is kept robust and in tune with the requirements.

What should be the ideal path that the government should take in the proposed privatisation of two public sector banks and does it also mean that the corporate sector should be allowed?

Amendments to the Bank Nationalisation Act would be required because, under it, the government enjoys special powers, the government is not just an ordinary majority shareholder, it is a privileged shareholder with special powers. Second, which kind of banks? It is for the government as the owner of the banks to decide and from the RBI’s point of view, we would be particular about two things: One, the entity (or the individual) which takes over the bank meets the RBI’s fit and proper criteria, and two, what size of additional capital it is bringing to the bank.

There was an internal working group, which we had formed. If you look at the RBI’s regulatory framework for scheduled commercial banks, it evolved over a period of time. Depending on when a particular bank got a licence, a different set of regulations applies to it. There was a need to synergise the regulatory framework for banks irrespective of when the licence was granted, whether it was granted 20-25 years ago, or it was granted recently, about 7-8 years ago. There was a need to bring in consistency and uniformity in the regulatory framework.

Besides, the Indian economy has grown and is expected to grow further. There is a need for greater credit penetration, improving our credit to GDP ratio. How do we ensure that it happens? Technology is also evolving, the economy is very dynamic. India is increasingly becoming globally integrated and our banking sector should keep pace. Therefore, in this background, we formed the internal working group which has given its recommendations. Our idea of putting it in the public domain was to have an informed discussion and get stakeholders’ inputs. The inputs have come and are under examination. We will take a suitable decision on this in due course.

What are the concerns over cryptocurrencies?

I would like to say that there are two aspects. One is the technology that is blockchain or the distributed ledger technology (DLT). The technology needs to be harnessed. There are many positive applications that need to be exploited keeping in mind of course their high energy consumption. The other aspect is the cryptocurrencies, where some sort of digital codes are being traded. On that, we have major concerns which we have communicated to the government and now it will take a call and perhaps go to Parliament as may be required.

What are your views on the soaring stock markets?

The investor will have to take his or her own decision. But as the central bank what I have observed and said is that there is a divergence between the real fundamentals of the economy and certain segments of the financial markets which appear to be moving much ahead of the curve. In the normal course of things, both will adjust to each other. In situations like these, it is essential that every investor takes a very judicious call and not get carried away by short-term trends or developments and particularly small investors need to be very watchful and take their own decisions.

The IBC has been suspended and some banks are not keen on the freeze to be lifted. Your views?

The amendment to the IBC has a sunset date and it is expiring on March 25. I am not aware of any bank wanting an extension of that date. The RBI came out with a resolution framework for Covid-related stressed assets on August 6 last year. It would be better for borrowers to avail the benefit under that particular restructuring package and move on rather than remain static. That framework needs to be utilised.

Further, a very positive development in recent months has been that both public and private sector banks have proactively made provisions for the Covid-related stressed assets, notwithstanding the moratorium which was granted by RBI and the asset classification standstill which is operational at the moment in view of the Supreme Court orders.

RBI has talked about the possibility of a spike in NPAs and about the need for banks to be ready with capital…

In our latest financial stability report, the baseline stress scenario is 13.5% and in a severe scenario, we have given a higher number. The first thing to be noted that it is not a forecast and we have said that in very clear terms in the report. It is a projection based on certain models and the purpose of making this projection is to sensitise the financial sector players, especially the banks, to proactively take steps to protect and preserve the soundness of their balance sheets.

The banks have also responded quite positively, and this is something I have been articulating right from July last year, that is the need for additional capital by every bank, both public sector and private sector banks. Both groups of banks have raised additional capital in the last few months.

How has your experience as a civil servant helped you navigate one of the most turbulent times in history?

More than 40 years ago I did not do MA-economics, I did postgraduation in a different subject. But over the last 40 years, because I started my career in civil service in 1980, I have been a very keen observer and a keen student of the Indian economy and I was also fortunate to have worked in the economic sector both at the state and Central level for a sufficiently long period of time.

As a civil servant, what helps is that it places you in a very unique position where you take a 360-degree view of things from day one of your career. You learn how to read the nuances and the complexities of every problem and how to deal with real-life challenges. You are aware from day one that action has to be timely, it cannot be delayed and it also should not be premature. This is something civil service teaches you.

April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next

I would begin by thanking the Bombay Chamber of Commerce and Industry for the invitation to address this eminent gathering, even if virtually – the compulsive reality of the current times. My heartiest congratulations to the Bombay Chamber of Commerce and Industry for completing 184 years of successful functioning. Besides being the oldest serving Chamber in the country, you have left a significant mark on the destiny of this city as also of the nation. I am happy to note that under the aegis of “Corporate as a Citizen”, the Chamber is focusing on greater and more equitable progress by promoting ethical conduct in business, skill training and balanced industrial growth. The theme that you have chosen this year – Corporates for Change – could not have been more apposite. I wish you all success in your endeavour. I am sure the Chamber is striving hard to make the most of new opportunities thrown in by the pandemic. In fact, in my address today, I propose to focus on the theme ‘creating new opportunities for growth’.

2. While pandemics are rare events and seldom replicate past episodes, studying their impact and policy responses provide valuable insights. Four such severe pandemic outbreaks in India viz., 1896 plague, 1918 Spanish flu, 1958 Asian flu and 1974 small pox show that all were associated with a contraction/deceleration in GDP, with the 1918 Spanish flu remaining the “mother of all pandemics” in terms of loss of life and livelihood. The recovery, however, was observed to be swift and complete within 2 years of these outbreaks, except in the case of the Spanish flu wherein GDP per capita climbed back to pre-outbreak levels only after four years in 1922. Policy responses post these pandemics had essentially focused on the provisioning for medical and public health sectors as well as offsetting the debilitating impact of the pandemic on the economy. It was seen that growth became excessively dependent on government expenditure, while timely and well calibrated exit from exceptional fiscal measures were critical for macroeconomic stability, going ahead. Policy focus on boosting private consumption expenditure and investment was the key in reviving the economy on a durable basis.

Fiscal and Monetary Policy Responses during the COVID-19 Pandemic

3. The past year has witnessed unimaginable misery and agony across the world entailing large destruction of human life and wealth. Governments and central banks across the globe unleashed conventional and unconventional policy support to fight its devastating adverse impact. Globally, governments unveiled large fiscal stimulus packages in 2020 amounting to nearly $14 trillion (13.5 per cent of world GDP) to contain the spread of the pandemic (IMF, 2021) and consequently, deficit and debt levels soared. In India also, the central government announced a series of economic packages, initially focussing on protecting vulnerable sections of the society followed by counter-cyclical measures to provide an impetus to consumption and investment for resurrecting growth.

4. Central banks, on the other hand, had proactively designed and implemented various conventional and unconventional monetary policy measures, based on their experience from past crises, notably the global financial crisis (GFC) of 2008. Most central banks have lowered policy rates, widened the range of eligible counterparties and eased collateral norms, while increasing the scale and tenor of repo operations. They also expanded their asset purchase programmes (APPs) to contain pandemic-induced elevated uncertainty and facilitate lower long-term interest rates. These measures were complemented by implicit and explicit forward guidance by communicating the ‘stance’ of monetary policy, going ahead.

5. In India, the Reserve Bank undertook several conventional and unconventional measures in the wake of COVID-19. Other than conventional measures, the RBI introduced long term repo operations (LTROs) and targeted long-term repo operations (TLTROs) to augment system as well as sector-specific liquidity to meet sectoral credit needs and alleviate stress. Special refinance facilities were provided to select all India financial institutions (AIFIs), while a special liquidity facility for mutual funds (SLF-MF) was introduced to ease redemption pressures. Unlike many central banks, the RBI’s asset purchases did not dilute its balance sheet and hence, did not compromise on core principles of central banking. These purchases were confined to risk-free sovereign bonds (including state government securities) only. The focus was to foster congenial financing conditions without jeopardising financial stability. Further, forward guidance gained prominence in the Reserve Bank’s communication strategy to realise cooperative outcomes. Our commitment to ensure ample liquidity conditions supportive of recovery dispelled illiquidity fears and bolstered market sentiments. We will continue to support the recovery process through the provision of ample liquidity in the system, while maintaining financial stability.

Impact on Trade and Balance of Payments

6. The impact of COVID-19 induced deceleration on GDP and trade if compared with the GFC of 2008, reveals contrasting trends. Global GDP is estimated to have contracted by 3.5 per cent during 2020, much higher than the contraction of 0.1 witnessed during the GFC; while global merchandise trade is estimated to have only contracted by 9.2 per cent during 2020 as against a contraction of 22.3 per cent during 2009. This differential pattern could essentially be attributed to the major role played by domestic drivers across countries – induced by lockdowns – during the recent episode.

7. Even though merchandise trade has shown incipient signs of revival since end-2020, recovery in services trade is yet to gain traction as subdued cross-border tourism and travel restrictions continue to weigh on the overall performance of the sector. Uneven global trade recovery led by a few Asian countries and select sectors such as medical equipment and electronic products raises concerns regarding its sustainability. A crucial impediment to revival of global trading activity is the continued disruptions in global supply chains with steep increase in shipping costs since November 2020 and lengthening of delivery times leading to rising commodity prices. These issues call for urgent attention from policy makers across the world.

8. The impact of demand and supply shocks is also reflected in the balance of payments. While commodity exporting countries faced lower current account surpluses due to negative shocks to their net terms of trade, net commodity importing countries such as India benefited, recording either lower deficits or even surpluses. Lower crude oil prices and weak demand due to COVID-19 related lockdown in early days of the pandemic squeezed India’s oil import bill by 42.5 per cent during April-January 2020-21. In contrast to goods trade, India’s net services exports remained relatively resilient despite travel receipts falling sharply due to travel restrictions. Unlike most of the other major economies, India’s services exports gained traction from software exports. Domestic information technology (IT) companies benefitted from growing global demand for core transformation services as their customers focused on new models for IT operations during the pandemic. Remittance inflows fell amid widespread job losses in host countries. Nevertheless, the decline in remittances was more than offset by the lower trade deficit and robust net exports of services.

9. As noted by UNCTAD (2021), India’s inward foreign direct investment (FDI) bucked the global trend and grew positively in 2020, boosted by investments in the digital sector. In 2020-21 (April-December), net FDI to India at US$ 40.5 billion was higher than US$ 31.1 billion a year ago. India’s optimistic growth outlook and ample global liquidity also induced net foreign portfolio investment of US$ 35 billion in domestic equity market in 2020-21 (up to February 19). Non-residents also made higher accretion to deposits with banks in India. Consequently, the surplus on both current and capital account is reflected in build-up of foreign exchange reserves during the year. As on February 19, 2021, foreign exchange reserves were US$ 583.9 billion, an accretion of US$ 106.1 billion since end-March 2020. The external sector outlook would continue to be reshaped by headwinds and tailwinds associated with both domestic and global recovery.

Emerging Post-Covid Opportunities in India

10. I would now like to focus on certain emerging post-Covid opportunities in India, for which I have listed out seven key areas for special mention.

(i) Manufacturing and Infrastructure

11. The manufacturing sector is spearheading the growth recovery as many contact intensive services sub-sectors are severely affected by the crisis. The initiatives by the Government under the AatmaNirbhar Bharat Abhiyaan and Union Budget 2021-22 towards developing a vibrant manufacturing sector and infrastructure acknowledges the strong linkages they have with the rest of the sectors. The Production Linked Incentive (PLI) Scheme aims to make India an integral part of the global value chain. This, along with reforms in labour market, can go a long way in propelling growth to an elevated trajectory for the manufacturing sector and reap its employment potential.

(ii) Micro, Small and Medium Enterprises

12. I am happy to note that small and medium enterprises account for about two-thirds of the current membership of the Bombay Chamber of Commerce and Industry. The Micro, Small and Medium Enterprises (MSME) sector in India has emerged as the growth engine of the economy with a vast network of about 6.33 crore enterprises contributing 30 per cent to our nominal GDP and around 48 per cent to exports¹. The sector employs about 11 crore people, second only to agriculture. The sector has been rendered especially vulnerable by the pandemic, necessitating concerted efforts to combat the stress and focus on revival of the sector. In this regard, two major schemes, viz., the Emergency Credit Line Guarantee Scheme (ECLGS) and the Credit Guarantee Scheme for Subordinate Debt (CGSSD) were introduced by the Government. These have been duly supported by various monetary and regulatory measures by the Reserve Bank in the form of interest rate cuts, higher structural and durable liquidity, moratorium on debt servicing, asset classification standstill, loan restructuring package and CRR exemptions on credit disbursed to new MSME borrowers. These measures will not only help in ameliorating stress in the sector but also open new opportunities. Going forward, the Reserve Bank stands ready to support the Small Industries Development Bank of India (SIDBI) for greater credit penetration to the MSME sector.

(iii) Technology and Innovation

13. Digital penetration in India has scaled a new high. The time has come to leverage its applications while at the same time strengthening the digital infrastructure. With approximately 1.2 billion wireless subscribers and 750 million internet subscribers, India is the second largest and one of the fastest-growing markets for digital consumers².

14. As digital capabilities improve and connectivity becomes omnipresent, technological innovation and technology-driven revolution are poised to quickly and radically change India’s economy. They have the potential to raise the productivity of agriculture, manufacturing and businesses as well as improve the delivery of public services, such as health and education. In the financial sector, this could lead to higher financial inclusion, lesser information asymmetry and reduced credit risk. Similarly, open online courses, audio-visual training programmes and remote learning can strengthen the match between skills required by the industry and skills imparted in schools, colleges and technical institutes. Healthcare delivery can be improved via digitisation of medical records, remote provision of diagnosis and prescription via smartphones and mobile internet. Technology adoption in rural areas for ‘precision farming’ by using geographical information systems-based soil, water and climate data to guide farming decisions as well as using real-time market information to guide sale of agro-products can add high value to the agriculture sector. The e-commerce sector with its lower cost of transactions is already revolutionising the market structure culminating in deeper market integration.

15. I would like to point out that gross domestic expenditure on research and development (GERD) in India is mainly driven by the Government with a share of 56 per cent in total R&D. It is important that for India to become a global technology and innovation leader, the corporate sector should take the lead as is the case in many emerging markets and advanced economies.

(iv) Health

16. Post COVID-19, the health sector has undoubtedly emerged as a major fault line as well as the sector with tremendous growth opportunities. With a network of more than 3000 companies, India now ranks third globally for pharmaceutical production by volume, with the sector generating a trade surplus of over US $ 12 billion annually. India now supplies more than half of the global demand for vaccines. The sector is expected to witness strong growth in the coming years with its commitment to R&D and low cost of production. It is expected to supply a significant share of increased global demand for vaccines and medicines in the post COVID-19 scenario. Going forward, focus should be more on enhancing overall supply of health services at every level of value chain in a cost effective manner. Corporate sector needs to invest more to create scale and skill in this sector.

(v) Export Push

17. With the global economy gradually emerging from one of its deepest recessions, global trade activity is also likely to get a cyclical upturn going forward. In the case of India, there has also been focus on structural reforms that can set a foundation for robust growth and greater role of domestic industry in global value chain. Based on sectoral strengths and potential opportunities, the PLI scheme identifies a few champion sectors that will support domestic manufacturers in achieving economies of scale and expanding their footprint in the global market. The response from companies – particularly in electronics, pharmaceuticals and the medical device industry – to this scheme is reported to be very encouraging. This export push is also likely to come from other sectors like food products; apparel and textiles; capital goods; automobile and auto components; and electronics and semi-conductors. Since the incentive structure under PLI scheme is envisaged for the next five years, domestic industry needs to develop its strength by focusing on quality and export competitiveness in order to remain viable in the long-term.

(vi) Free Trade Agreements (FTAs)

18. Another policy area which needs focus for providing a durable push to India’s exports and growth is Free Trade Agreements (FTAs) with key strategically important economies. The potential FTAs need to take cognisance of not only domestic strengths and global opportunities but also the emerging geo-political landscape in the post-pandemic period. While designing future FTAs, India’s experience with FTAs can be a significant guidepost. Key considerations should be to identify countries and regions that not only have the potential as a market for domestic goods and services but also have the scope to enhance domestic competitiveness, especially in sectors covered under the PLI scheme. The post-Brexit scenario offers a greater scope for having separate trade agreements with the UK and the European Union. FTAs with these economies can boost not only the bilateral trade and investment relations but may also pave the way for greater collaboration in the areas of scientific research and climate change. Due to favourable demographic dividend, Africa also offers immense potential for exports and investment from Indian firms. Large presence of Indian diaspora could help tap this potential.

(vii) Services Exports

19. Recovery in world services trade, which grew faster than merchandise trade in the pre-pandemic period, is expected to be slower due to cross-border travel restrictions being still in place. There has, however, been greater emphasis on carrying out business operations with efficiency. This has increased the demand for cutting-edge software services and new business opportunities brought on by the ongoing global value chain reconfiguration. This has also provided resilience to software exports of IT companies. A recent study by WTO (February 2021) estimates that by 2030, global trade growth would be 2 per cent higher annually, on average, because of the adoption of digital technologies. This should open up new opportunities for trade by reducing trade costs and strengthening ties between global value chains. Given our renewed focus on digitisation, India by being the largest software exporting country, is expected to gain with increased servicification.

Conclusion

20. Overall, we are on the cusp of a turnaround in fortunes. In contrast to rest of the world, the caseload of COVID-19 in India has declined and it is crucial for us to consolidate this decline and capitalise on the success that has been hard-earned. The infection caseload in some parts of the country is, however, again creeping up. We need to stay vigilant and steadfast, and on our toes. The COVID war continues. The battle of 2020 has been won, albeit with significant costs in terms of lives, livelihood and economic activity. We need to win the battle of 2021 also. Let us resolve to eventually win this war.

Thank you, stay safe, Namaskar.

---

April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next

At the outset, let me pay my homage to Shri Nani A. Palkhiwala and his grand legacy as a nation builder of modern India. I would also like to convey my sincere appreciation to the Palkhivala Foundation for continuing the tradition of organising Shri Palkhivala Memorial Lectures. I consider it as a great honour to be delivering the 39th Shri Palkhivala Memorial Lecture today, more so – among others – because he was very closely associated with the RBI during his tenure as a member of the Central Board from 1963 to 1970. Gleaning through the history of the RBI, I gather that he participated actively in discussions of the Central Board on important issues spanning bank nationalisation, external aid and development finance institutions. He invariably brought insightful perspective to the deliberations on various issues. Shri Palkhivala was a strong votary of enhancing competition in the banking sector and nurturing native entrepreneurial capabilities to spur economic progress. These issues continue to be relevant even in the present times.

2. The immensity of Shri Palkhivala’s life-long contributions to the Indian society is well known. He was a gifted jurist who held the constitution, economic and individual freedoms in highest regard. His conduct and integrity during the epochal Kesavananda Bharti case and in many other cases underlined the strength of his character, profound intellect and a heart full of empathy for the citizens of this country.

3. Shri Palkivala was an orator par excellence, both inside and outside the courtroom. Starting in 1958, his famous post-budget speeches are still remembered for their eloquence, intelligence and sharp wit. With growing audience every year, the venue of Palkhivala’s speeches on budget kept getting shifted to bigger places. In 1983 when it was held in the Brabourne Stadium in Mumbai, Vijay merchant – the President of the Cricket Club of India – while welcoming the gathering had remarked¹ “Mr. Palkivala has brought the crowds back to the Brabourne stadium” since test matches had been shifted to the newly constructed Wankhede stadium.

4. The topic of my lecture today is “Towards a Stable Financial System”. The year bygone could be marked as one of the toughest periods for human society. The unprecedented health and economic catastrophe caused by the COVID-19 pandemic has exposed and widened economic and societal fault lines across countries. It is, therefore, essential to evolve a prudent and judicious approach towards managing the financial system not only during the pandemic but also in its aftermath.

I. Changing Contours of Financial Stability

5. Globally, the concept of financial stability has been evolving over time. With increasing complexity of the financial system, the focus of financial stability has moved beyond commercial banks and providing them liquidity during bank runs, to other segments like non-bank financial institutions, financial markets, payment systems, etc. The focus area has thus widened to several other pressure points to prevent financial instability. Not surprisingly, therefore, preservation of financial stability has steadily evolved to become a major objective among central banks, implicitly or explicitly, alongside traditional and evolving goals of monetary policy.

6. Since the global financial crisis (GFC) of 2008, financial stability has featured even more prominently in the discourse of central banks. It has been well documented that central banks in many countries were narrowly focused on price stability and perhaps overlooked the build-up of financial instability during the great moderation period. The pre-crisis consensus was for unfettered financial sector growth and minimal regulation that was supposed to deliver even more growth. The 2008 crisis made it abundantly clear that financial strength of individual institutions does not add up to systemic stability. That was evident because before the crisis happened, almost every financial institution reported substantial capital adequacy. This made the policy makers realise that while micro-prudential regulations would help determine the strength of a financial entity, they have to be complemented with adequate macro-prudential regulations and anti-systemic risk measures. Preserving systemic stability thus emerged as the cornerstone of central bank policies.

7. In the Indian context, maintaining financial stability remains one of the uppermost objectives of the Reserve Bank, drawing from its wide mandate as the regulator of the banks, NBFCs and payment systems; regulator of the money, forex, government securities and credit markets; and also as the lender-of-the-last resort. This unique combination of responsibilities – monetary policy combined with macroprudential regulation and micro-prudential supervision – has allowed the Reserve Bank to exploit the synergies across various dimensions.

8. The conceptual underpinnings of financial stability, as it evolved post-GFC, entailed preserving and nurturing a well-functioning financial architecture which includes not just the banks but also other financial institutions along with efficient and secure payment and settlement systems. Recent experience across countries during the pandemic suggests that even though banks, non-banks, financial markets and payment systems remain at the core of financial stability issues, there is still a need to look much closer at the system in its entirety. In this sense, the overall objective of financial stability policies should be closely intertwined with the health of the real economy. More precisely, given that the financial system works as a pivot between various sectors of the economy and given the strong linkages across sectors, financial stability needs to be seen in a broader perspective and must include not just the stability of the financial system and monetary stability (price stability), but also fiscal sustainability and external sector viability. All these operate in a feedback loop; and disturbances in any of the segments do get propagated to other segments with the potential of disrupting systemic stability.

9. When we look at financial stability from such a perspective, preserving and nurturing the same becomes a public good, which should facilitate creation and nurturing of congenial underlying conditions for sustained growth and development. In difficult circumstances, such as the current one, it is important that all stakeholders recognise and partake in their shared responsibility for the collective benefit of the society at large. History is replete with examples of such endeavours in response to difficult situations and that, in essence, has been the story of human progress and modern economies.

II. Preserving Financial Stability during COVID-19

10. The idea of financial stability in this broader sense moulded the Reserve Bank’s approach during the pandemic, which was a unique crisis, more challenging than the global financial crisis of 2008, impacting both the real and financial sector in great severity. With conventional, unconventional and new tools, the Reserve Bank responded through a series of measures to alleviate stress in various segments of the economy and the financial sector, including the stress encountered by market players and financial entities. Broadly speaking, our approach to the Covid situation included the following measures:

(a) Measures to mitigate the immediate impact of the pandemic : loan moratoriums together with asset classification standstill; easing of working capital financing and deferment of interest; restructuring of MSME loans, etc.

(b) Liquidity augmenting measures: LTRO/ TLTRO/refinance schemes for various sectors including stressed sectors; reduction in CRR, and other measures totalling about ₹12.81 lakh crore (6.3 per cent of nominal GDP of 2019-20).

(c) Countercyclical regulatory measures to ease stress on borrowers and the banking system –relaxation in regulatory compliance; conservation of capital by banks; relaxation in group exposure norms, etc.

(d) Measures to ensure uninterrupted flow of credit – significant interest rate cuts (115bps); assuring markets of easy financing conditions; exemption from CRR maintenance for incremental retail and MSME loans; extension of priority sector classification for bank loans to NBFCs for on-lending; rationalisation of risk weights for regulatory retail portfolio and individual housing loans, etc.

(e) Framework for resolution of Covid-related stress for individuals and businesses.

(f) Closer surveillance of supervised entities focusing on business process resilience and continuity, proactive management of risks, stress tests and proactive raising of capital, etc.

11. Our principal objective during this pandemic period was to support economic activity; and looking back, it is evident that our policies have helped in easing the severity of the economic impact of the pandemic. I would like to unambiguously reiterate that the Reserve Bank remains steadfast to take any further measures, as may be necessary, while at the same time remaining fully committed to maintaining financial stability.

III. Adaptations and Learnings: Way Forward

12. The recent period has given us an opportunity to learn and adapt and decide on the way forward. In today’s lecture, I would like to focus on three key areas: (i) stability of the banking and non-banking financial sector; (ii) external sector stability; and (iii) fiscal stability. Let me first focus on the banking and non-banking financial sectors.

Governance Reforms

13. Integrity and quality of governance are key to good health and robustness of banks and NBFCs. Recent events in our rapidly evolving financial landscape have led to increasing scrutiny of the role of promoters, major shareholders and senior management vis-à-vis the role of the Board. The RBI is constantly focussed on strengthening the related regulations and deepening its supervision of financial entities.

14. A good governance structure will have to be supported by effective risk management, compliance functions and assurance mechanisms. These constitute the first line of defence in matters relating to financial sector stability. Some of the integral elements of the risk management framework of banks would include effective early warning systems and a forward-looking stress testing framework. Banks and NBFCs need to identify risks early, monitor them closely and manage them effectively. The risk management function in banks and NBFCs should evolve with changing times as technology becomes all pervasive and should be in sync with international best practices. In this context, instilling an appropriate risk culture in the organisation is important. This needs to be driven by the Board and senior management with effective accountability at all levels.

15. In addition to a strong risk culture, banks and non-banks should also have appropriate compliance culture. Cost of compliance to rules and regulations should be perceived as an investment as any inadequacy in this regard will prove to be detrimental. Compliance culture should ensure adherence to not only laws, rules and regulations, but also integrity, ethics and codes of conduct.

16. A robust assurance mechanism by way of internal audit function is another important component of sound corporate governance and risk management. It provides independent evaluation and assurance to the Board that the operations of the entity are being performed in accordance with the set policies and procedures. The internal audit function should assess and contribute to improvement of the organisation’s governance, risk management and control processes using a systematic, disciplined, and risk-based approach.

17. In all these areas, the RBI has already taken a number of measures and will continue to do so from time to time. Recent efforts in this direction were geared towards enhancing the role and stature of the compliance and internal audit functions in banks by clarifying supervisory expectations and aligning the guidelines with best practices. Some more measures on improving governance in banks and NBFCs are in the pipeline.

Supervisory Initiatives

18. In the last two years, the Reserve Bank has initiated a series of measures to strengthen its supervisory framework over SCBs, UCBs as well as NBFCs. The supervisory functions pertaining to these sectors are now integrated, with the objective of harmonising the supervisory approach. The possibility of working in silos has been eliminated. We have developed a system for early identification of vulnerabilities to facilitate timely and proactive action. We have been deploying advances in data analytics to offsite returns so as to provide sharper and more comprehensive inputs to the onsite supervisory teams. The thrust of the Reserve Bank’s supervision is now more on root causes of vulnerabilities rather than dealing with symptoms. Bank-wise as well as system­-wide supervisory stress testing adds a forward-looking dimension for identification of vulnerable areas. A risk-based supervision framework focussing on know your customer (KYC)/anti money laundering (AML) risk has been created in line with global practices. Fintech initiatives are being embraced in the form of innovative technologies for regulation (RegTech) and supervision (SupTech).

19. As regards regulatory intervention in banks to protect the interest of depositors, our approach in recent times has been to first work closely with the management to find a workable solution. When this does not work, we have intervened and put in place a new arrangement within a quick time schedule. With preservation of financial stability and depositors’ interest being uppermost in our agenda, we could swiftly resolve the situation at two scheduled commercial banks. Notwithstanding improvements being made, it is recognised that enhancing and refining the supervisory framework is a continuous process. The RBI remains strongly committed to preserve the stability of the financial sector. We will do whatever is necessary on this front.

Recapitalisation of Banks

20. Going ahead, financial institutions in India have to walk a tightrope in nurturing the economic recovery within the overarching objective of preserving long-term stability of the financial system. The current COVID-19 pandemic related shock will place greater pressure on the balance sheets of banks in terms of non-performing assets, leading to erosion of capital. Building buffers and raising capital by banks – both in the public and private sector – will be crucial not only to ensure credit flow but also to build resilience in the financial system. We have advised all banks, large non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy, and work out possible mitigation measures including capital planning, capital raising, and contingency liquidity planning, among others.

21. Preliminary estimates suggest that potential recapitalisation requirements for meeting regulatory norms as well as for supporting growth capital may be to the extent of 150 bps of Common Equity Tier-I capital ratio for the banking system². Prudently, a few large public sector banks (PSBs) and major private sector banks (PVBs) have already raised capital, and some have plans to raise further resources taking advantage of benign financial conditions. This process needs to be put on the fast track.

External Sector Stability

22. Given that the domestic financial sector closely interacts with external sector through various channels, it becomes a critical segment from a financial stability perspective. A weak external sector can pose a threat to domestic financial stability in the face of swift changes in the global economic environment as was the case during the GFC (2008) or the taper-tantrum period (2013). External sector conditions are generally captured through movements in current account balances, capital flows, exchange rates, foreign exchange reserves and external debt position. Sudden changes in any of these indicators due to global shocks and/or domestic developments can impact the viability of external sector and its interaction with the domestic economy.

23. Notwithstanding the worsening of both external and domestic demand conditions impinging on exports and imports since the onset of COVID-19, India’s external sector has remained resilient. Lower trade deficit driven by steeper fall in imports coupled with resilient net exports of services translated into a large current account surplus to the tune of 3.1 per cent of GDP in H1:2020-21. With surplus in the current account, the scope of absorption of strong inflows of foreign direct investment and portfolio investments by the economy was limited which led to a large accretion in foreign exchange reserves.

24. Sustained accretion to foreign exchange reserves has improved reserve adequacy in terms of conventional metrics such as (i) cover for imports (18.4 months) and (ii) reserves to short-term debt in terms of residual maturity (236 per cent). Sound external sector indicators augur well for limiting the impact of spillovers of possible global shocks and financial stability concerns as investors and markets are credibly assured of the buffer against potential contagion. While abundant capital inflows have been largely driven by accommodative global liquidity conditions and India’s optimistic medium-term growth outlook, domestic financial markets must remain prepared for sudden stops and reversals, should the global risk aversion factors take hold. Under uncertain global economic environment, EMEs typically remain at the receiving end. In order to mitigate global spillovers, they have no recourse but to build their own forex reserve buffers, even though at the cost of being included in currency manipulators list or monitoring list of the US Treasury. I feel that this aspect needs greater understanding on both sides so that EMEs can actively use policy tools to overcome the capital flow related challenges. At the Reserve Bank, we are closely monitoring both global headwinds and tailwinds while assessing domestic macroeconomic situation and its resilience.

Fiscal Stability

25. The COVID-19 pandemic has further brought to the fore the need for governments to spend on merit goods and public goods; in particular on improving human and social capital and on physical infrastructure (IMF, 2020). As per IMF’s calculations, the total fiscal support in response to COVID-19 amounted to about 12 per cent of global GDP by mid-September 2020. Global public debt is said to reach 100 per cent of GDP in 2020. As a result, most economies are expected to emerge from the pandemic with higher deficits and debt vulnerabilities. Under these circumstances, and given the expenditure requirements to support the process of economic revival, fiscal stability becomes an even more important constituent of overall financial stability.

26. Although the scale of fiscal spending is expected to breach the quantitative targets of fiscal prudence across most economies in the short-run, it was crucial in the context of the pandemic from the perspective of welfare aspect of public expenditure. Expenditure on physical and social infrastructure including human capital, science and technology is not only welfare-enhancing, it also paves the way for higher growth through their higher multiplier effect and enhancement of both capital and labour productivity. Under these circumstances and going forward, it becomes imperative that fiscal roadmaps are defined not only in terms of quantitative parameters like fiscal balance to GDP ratio or debt to GDP ratio, but also in terms of measurable parameters relating to quality of expenditure, both for center and states. While the conventional parameters of fiscal discipline will ensure medium and long-term sustainability of public finances, measurable parameters of quality of expenditure would ensure that welfarism carries significant productive outcomes and multiplier effects. Maintaining and improving the quality of expenditure would help address the objectives of fiscal sustainability while supporting growth.

IV. Concluding observations

27. Looking ahead, our financial system faces both challenging times and new opportunities as the Indian economy returns to full vitality. New vistas of financial intermediation leveraging on technology and new business models will emerge. With the exponential growth of digitisation and online commerce in India, the Reserve Bank has also directed its policy efforts to put in place a state of the art national payments infrastructure, while ensuring a safe, secure, efficient, cost-effective and robust payments ecosystem. The Reserve Bank is positioning itself to provide an enabling environment in which regulated entities are catalysed to exploit these new avenues, while maintaining and preserving financial stability. The regulated entities, on their part, need to strengthen their internal defences to identify emerging risks early and manage them effectively. Financial stability is a public good and its resilience and robustness needs to be preserved and nurtured by all stakeholders. We need to support economic revival and growth; we need to preserve financial stability.

Thank you.

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April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next

I wish to thank NCAER for inviting me to deliver the key note address at this webinar on National Strategy for Financial Education. I appreciate the thoughtful initiative of NCAER in choosing this topic for the webinar. As we inch towards the close of what has been an unprecedented year in terms of loss of lives and livelihood and the way of living in general, it would be appropriate to look at the area of financial inclusion and literacy which has both broad macro level implications for financial stability as also a micro connotation towards an individual’s financial wellbeing.

Introduction

2. India, with a large section of population in the working age group, is already the third largest economy in the world in terms of purchasing power parity and is aiming to become a USD 5 trillion economy. The Government has been undertaking a series of calibrated macro measures through wide ranging structural reforms. We need to harness the demographic dividend by meeting the aspirations of a large young population. This necessitates creating an enabling environment and infrastructure in the form of education, training and opportunity. Among all the prerequisites for achieving demographic dividend and accelerated growth, quality of human resources, greater formalisation of economy, a higher credit to GDP ratio and greater financial inclusion are the differentiating factors that would elevate our economy to the desired level.

3. To improve the credit to GDP ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending. Credit bureaus and the proposed Public Credit Registry (PCR) framework are expected to improve the flow of credit as well as credit culture. As regards financial inclusion, a number of steps have been taken by the government and the RBI. As a result, large and hitherto excluded, sections of the population have been brought into the formal financial fold. In this context, promoting and deepening financial education would play a very important part in our endeavour to realise our collective potential.

Financial Inclusion initiatives so far

4. Financial Inclusion initiatives in India started in the aftermath of first All India Rural Credit Survey in 1954 with promotion of cooperatives, followed later by expansion of branch network after nationalization of major private sector banks, launch of Lead Bank Scheme, promotion of Self Help Groups(SHGs), Joint Liability Groups (JLGs), implementation of Banking Correspondents (BC) model, expansion of banking outlets, creation of payments banks, small finance banks, etc. The largest impact in recent years came from the opening of Jan Dhan accounts and implementation of the Pradhan Mantri MUDRA Yojana (PMMY).

5. The launch of Pradhan Mantri Jan Dhan Yojana (PMJDY) in 2014 has resulted in almost every household having access to formal banking services² along with a platform for availing low value credit, insurance and pension schemes. This has been ably supported by initiatives to ensure last-mile delivery of banking services through innovative banking channels like the BC Model. Thanks to technology, there has been massive improvement in deepening of digital financial services. The Jan Dhan, Aadhaar and Mobile (JAM) eco system has made a significant difference in the universe of financial inclusion.

6. Further, several initiatives have been taken for the creation of enabling digital infrastructure at the ground level and accelerate the progress towards universalising digital payments in a convenient, safe, secure and affordable manner. Among those, the pilot project launched by the RBI in Oct 2019 to make one identified district in every State/Union Territory 100% digitally enabled by March 2021 is significant. Forty-two such districts including 8 aspirational districts are part of this initiative. In addition to putting in place the necessary digital ecosystem, focussed attention by stakeholders on imparting financial education to the target groups will go a long way towards fulfilling the objectives of the pilot and provide a blueprint for scaling up similar initiatives in other districts.

7. The Financial Stability and Development Council (FSDC) approved the National Strategy for Financial Inclusion (NSFI) document which was launched by RBI earlier this year³ on January 10, 2020. The NSFI envisions to make financial services available, accessible, and affordable to all the citizens in a safe and transparent manner to support inclusive growth through multi-stakeholder approach.

Financial Education in India

An important policy agenda for the Government and the Financial Sector Regulators

8. With greater financial inclusion, there is a need to enhance customer protection and financial education so that people continue to access the formal financial services without hesitation. Needless to add that financial education plays a vital role in creating demand side response by enabling greater awareness and access to appropriate financial products and services through regulated entities. Financial resilience of individuals and their families can also be strengthened through financial education. To achieve these multiple objectives, several steps have been taken. Let me touch upon two such initiatives.

Setting of a National Centre for Financial Education (NCFE)

9. The NCFE has been set up by the four financial sector regulators as a Section 8 (Not for Profit) Company to promote Financial Education across India for all sections of the population as per the National Strategy for Financial Education (NSFE)⁴. NCFE undertakes financial education campaigns across the country through seminars, workshops, conclaves, training programmes, campaigns, etc. to help people manage money more effectively and achieve financial wellbeing in the process.

Centre for Financial Literacy (CFL) project – An innovative way to impart financial education through community approach

10. The CFL project has been conceptualised by the RBI in 2017 as an innovative and participatory approach to financial literacy at the Block level involving select banks and NGOs. Initially set up in 100 blocks on a pilot basis, the project is now being scaled up across the country to every block in a phased manner by March 2024. This was one of the announcements made on 4th December 2020 as part of the MPC statement. Going forward, the project is envisaged to change the paradigm of financial inclusion as well as education by ensuring greater involvement and receptibility of the community on the demand side so as to align with the expansion of institutional initiatives on the supply side.

Insights from Dissemination of financial education during the COVID-19 Pandemic

11. The COVID-19 related nationwide lockdown and restrictions on mass gathering of people at various public places has resulted in disruption in conducting conventional financial literacy camps. During this period, various approaches like using social media, mass media (including local TV channels, Radio), reaching out to local school education boards, training missions of the SHGs were undertaken across the country to continue dissemination of financial education.

National Strategy for Financial Education (NSFE 2020-2025)

Vision, Strategic Objectives and 5C approach

12. Financial Education is one of the strategic pillars which sets the broad context for the National Strategy for Financial Education (2020-2025). The NSFE (2020-2025) has set an ambitious vision of creating a financially aware and empowered India. It focusses on various aspects of financial education across banking, insurance, pension and investments through greater role for financial institutions (both banks and non-banks), educational institutions, industry bodies and other stakeholders. In order to reach out to the various target groups [school children, teachers, young adults, women, new entrants at workplace/ entrepreneurs (MSMEs), senior citizens, Divyang persons, illiterate people, etc.)], innovative techniques and digital modes of delivery including targeted modules for specific categories of customers have been envisaged. Further, due emphasis has also been given to safe usage of digital financial services and enhancing awareness about grievance redress measures. Keeping in view the importance of evidence-based policy making, evaluation methods to assess progress in financial education have also been identified as one of the strategic objectives.

13. The strategy includes a ‘5 Cs’ approach for dissemination of financial education through emphasis on development of relevant Content (including Curriculum in schools, colleges and training establishments); Capacity of the intermediaries who provide financial services and education; leveraging on the positive effect of Community led model for financial literacy through appropriate Communication Strategy; and enhancing Collaboration among various stakeholders.

The Way Forward and Conclusion

14. Financial inclusion in the country is poised to grow exponentially with digital savvy millennials joining the workforce, social media blurring the urban-rural divide and technology shaping the policy interventions. Going forward, harnessing the near universal reach of bank accounts across the length and breadth of the country, there needs to be greater focus on penetration of sustainable credit, investment, insurance and pension products by addressing demand side constraints with enhanced customer protection.

15. The interventions in financial education would have to be customised (local language and local settings) keeping the different target audience in mind. The scaling up of CFL project across the country at the block level would be the cornerstone of community led participatory approaches in our journey towards greater financial literacy.

16. Technology, though being a great enabler, can also lead to exclusion of certain segments of society. It is imperative to build trust in formal financial services among the hitherto excluded population. Adequate safeguards need to be reinforced to address issues of cyber security, data confidentiality, mis-selling, customer protection and grievance redress through appropriate financial education and awareness. These cast great responsibility on financial education providers.

17. To conclude, I would like to say that in a large country like ours with an aspiring population, financial education cannot remain just the responsibility of financial sector regulators. This aspect is highlighted in the NSFE document which recommends a multi stakeholder led approach to achieve financial wellbeing of all. Going forward, increasingly, educational institutions, industry bodies and other stakeholders like think tanks, research institutions should come forward to shoulder the responsibility of increasing financial literacy through appropriate awareness campaigns. I invite every such person and institution to be associated with our mission of nation building through creation of a financially aware and empowered India.

Thank you.

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