Fintech rules must match risks, not make firms resemble banks: RBI's Murmu

RBI Deputy Governor Shirish Chandra Murmu says regulation should address risks appropriately while allowing responsible innovation and experimentation to scale

The Reserve Bank of India’s objective is not to make fintechs resemble banks, but to ensure that entities performing critical financial functions manage risks, Deputy Governor Shirish Chandra Murmu said on Friday.

 

“Similar activities creating similar risks should, wherever appropriate, face similar regulatory treatment,” he said at the Global FinTech Fest in Mumbai. On the sidelines, he said the central bank is reviewing feedback from non-banking finance companies on a proposal that they should offer only term loans with a pre-determined repayment schedule.

 

According to the proposal, sanctioned limits cannot be restored once repaid and would effectively bar flexi-credit products that allow borrowers to repeatedly draw down and repay the same credit line.

  

The proposal may affect some fintech companies’ short-term revenue models, but compliance is critical to sustainable growth and attracting capital, Murmu said.

 

Regulation and innovation are not opposing forces. “Regulation creates the confidence for innovation to scale, and responsible innovation gives regulators the confidence to allow space for experimentation.”

 

Tech and regulation

 

Fintech companies often view regulation as a compliance cost but strong governance, cybersecurity, responsible data practices and customer protection can become competitive advantages as Indian fintechs expand overseas, he said.

 

“Technology should widen the frontier of formal credit, not merely make existing lending faster. The objective cannot simply be to make credit faster; it must also be to make credit better.”

 

“Partnership models are valuable, but the regulated entity remains accountable for services delivered in its name,” Murmu said. “Technology can distribute a service, but it cannot distribute responsibility.”

 

Technological accountability will become more important as algorithms influence credit decisions. Models can embed historical bias, produce economically inappropriate outcomes or make decisions that are difficult to explain to customers, he said.

 

“When an algorithm makes or materially influences a financial decision, who is accountable? The answer cannot be the algorithm,” Murmu said. As finance becomes more automated, human accountability must become stronger, not weaker, he said.

 

Murmu also flagged new regulatory questions as artificial intelligence (AI) moves from systems that analyse and recommend to agents that can plan and execute actions with limited human intervention.

 

“Who is responsible when an agent acts incorrectly? How do we ensure it acts in the customer’s interest rather than the institution’s?”

 

Institutions need to be able to supervise systems operating at machine speed. “These are not arguments against agentic AI. They are arguments for responsible agentic AI,” Murmu said, referring to AI systems that can independently plan, execute, and adapt multi-step tasks without a human prompt.

 

Digital payments

 

The scale of India’s digital payments ecosystem is creating risks.

 

“Scale changes the nature of risk,” Murmu said, calling for payment systems to be designed for stress, with redundancy, business continuity, incident response and recovery embedded into their architecture and governance.

 

Fraud must increasingly be treated as an ecosystem problem involving banks, payment operators, fintechs, telecom providers and law enforcement, he said.

 

“The measure of success for a payment system, then, is not only the number of transactions it processes each second. It is the trust embedded in each of those transactions,” Murmu said.

 

Murmu said the next phase of digital finance must focus on customers who remain outside the system, including those facing connectivity, digital literacy, language or accessibility barriers.

 

“I would ask the industry to treat inclusion as a design requirement, not a later addition,” he said. “One built for the hardest case almost always serves everyone else.”

 

He urged Indian payment providers and network operators to begin preparing for quantum computing, a technology that could threaten the cryptographic foundations of today’s financial system.

 

“The time has therefore come for Indian payment system providers and network operators to begin moving towards quantum-proofing our payment systems,” Murmu said.

 

“Quantum resilience is an ecosystem capability, not an institutional one,” he added.