Banking system in the midst of a revolution: Rajan

Central bank looking at exploring more niche banks like custodian banks, wholesale banks and long-term financing banks

Reserve Bank of India (RBI) Governor Raghuram Rajan has said that the banking system in the country is in the midst of a revolution with the introduction of new digital payment services and niche banks that are expected to begin operations this year.

“What we have in India is the most sophisticated public payments infrastructure in the world. But, it is not just the payments that are a part of the revolution, it is a whole new set of banks that are coming in,” said Rajan, at the launch of the Unified Payments Interface by the National Payments Corporation of India. Last year, RBI had given its in-principle approval to 10 payments banks and 10 small finance banks. These are expected to bring in the unbanked population into the banking fold. The banking regulator is now looking at exploring more niche banks such as custodian banks, wholesale banks and banks that will focus only on long-term financing.

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Rajan added that the focus would be on innovation and that RBI would be open to new technology instead of dismissing it. “The easiest thing to say is ‘No’, but it prevents the system from developing. The preferred thing to say is ‘Wait’. We should watch it and see how better regulation can evolve.” According to Rajan, with newer payments technologies developing and more people coming into the banking fold, the system should also focus on improving the security and ensuring that adequate grievance redressal mechanisms are put in place.

He also raised a red flag against fraudulent emails being sent out in the name of RBI, asking consumers for money. "Let me emphasise that RBI never sends out e-mails asking for payments. We have about $360 billion worth of foreign exchange reserves and we also have about 8 lakh crore of government bonds. We really don;t need your money," said Rajan.