Rajnish Kumar, Chairman, BharatPe, says “commenting on RBI‘s action, without even having looked at the report, would be very naive on anybody’s part. But one thing I can tell you is that because I was at the other end when I was chairman of a State Bank or a managing director in a State Bank or a managing director of risk and compliance, that they are considered to be the best regulators globally. So casting aspersions on RBI, which I have been reading and listening to, makes no sense. Only somebody who has no basic understanding of what their responsibilities are and how the system works, can make such comments.”
What are your thoughts on Paytm in terms of what the regulator has done? They are simply trying to protect the public interest here? And is it justified?
Rajnish Kumar: They have to understand how things work. And as far as Paytm is concerned, they have a company which is in payments, which is One97 Communications Limited and there is a payment bank. And these are regulated entities. And the rules around a payment bank and the rules around a payment service provider, which the parent company does. There are rules and regulations. Primarily, apart from so many responsibilities, which a bank takes, but coming specifically to banking, payments, financial services, there are three very important things. One is the stability of the financial system. Whenever RBI sees that some risk is building, they will take measures. Like you would have seen that they came up with the guidelines on the personal loans because RBI felt that excessive risk was building in the system.
Second is customer protection. Even today’s RBI governor’s statement about KFS or the Key Factor Statement, which is a very common thing for anyone who is dealing with a bank or borrowing money. The disclosures have to be very clear that at what cost they are borrowing or what are the terms and conditions and what are the foreclosure charges. There is nothing unusual and this is the primary responsibility of the regulator to ensure consumer protection.
The third issue is fighting money laundering. How the business will be conducted, because there are serious issues about the banking system being used for money laundering and terrorist financing. So with this onerous task, RBI will take such action which it deems appropriate. I do not know whether the action against Paytm was too severe as I have not seen the RBI report nor have I seen what kind of warnings or suggestions or guidance was given to Paytm Bank.
So commenting on RBI’s action, without even having looked at the report, would be very naive on anybody’s part. But one thing I can tell you because I was at the other end when I was chairman of a State Bank or a managing director in a State Bank or a managing director of risk and compliance, that they are considered to be the best regulators globally.
There is a huge appreciation of what RBI did in protecting Indian depositors and what it does to protect the banking system in the country. So casting aspersions on RBI, which I have been reading and listening to, makes no sense. Only somebody who has no basic understanding of what their responsibilities are and how the system works, can make such comments.
Paytm was given multiple warnings. That also brings into question the role of independent directors and the directors. RBI kept on warning Paytm, they were penalising Paytm. Finally, today, we even heard in the credit policy from the deputy governor that Paytm was given enough time and perhaps warnings to fix their house, which they failed to do.
Rajnish Kumar: Yes, this is presumed because when the RBI DG makes a statement, he is making a statement based on facts. When I make a comment, I am making a comment as an outsider. But it is presumed that a warning and the course of action, which is a regulated entity, I am not talking about Paytm specifically, as I was explaining that even the large bank like the State Bank of India. So from time to time, whenever RBI inspection happens, they point out certain things. And then there is a time in which corrective action has to be taken.
Today, if you are seeing that India’s banking system is much stronger, it is because the RBI has played a very critical role in providing that necessary supervision, guidance and regulations. Why I said this is because I was associated with the State Bank, and I know if the SBI refuses to listen to the RBI, they will close down the State Bank also.
What could be the out of jail card for Paytm? Do you think this could become a bigger problem and more and more regulatory challenges would come for Paytm?
Rajnish Kumar: As I said, there are two issues. One is that the action is on Paytm Bank and restrictions on wallet, FASTags. So, to that extent, yes, the payment bank is quite severely impacted. And the payment business or the other business which happens on the Paytm application, that can continue, but that is mostly on UPI. Because of wallet or FASTag after 29th February, if there are restrictions on putting or adding new money, then existing money can be used, so that can continue to operate.
If you have balance in your FASTag or wallet, you can use it till such time it gets exhausted, but you would not be able to add new money after 29th February. As far as the UPI based transactions are concerned, I do not think they are going to be impacted in any manner. But the question is that because UPI is all free and there is hardly any income from UPI transactions, the business model and capability to earn through transactions is a bit doubtful.
Given that post Covid, we saw a huge surge in the fintech industry. Interest rates were low, PE investors were ready, innovation was getting rewarded. It really has led to a lot of cross-selling, a lot of fintech which are in the BPL model, which are also in the business of borrowing as well as lending. Do you think a lot of these fintech models need to be revisited, especially when it comes to the borrowing models?
Rajnish Kumar: If you are talking about the digital lending guidelines, the way the regulation is happening now, fintechs work in close collaboration with the regulated entities and the primary responsibility comes with the regulated entity to see that whatever RBI regulations and rules are compliant. There is no choice and if the fintechs are acting either as a technology service provider or as a loan service provider, they will have to comply with the guidelines given to the principal.
Principal in this is a regulated entity, whether it is a bank or NBFC. So, RBI will first get hold of those regulated entities if they find that they are not compliant with the rules and regulations. So, naturally the regulated entities will ask the fintechs who are their agents to ensure that there is no violation while onboarding a customer, when you are collecting money from a customer,the need for KYC. That responsibility automatically will pass on to the agent.
UNO is also a fintech. It is efficient. It is linked to the bank. It is accepting deposits. It is dispersing loans. Do you think that really should be the big architecture in terms of what fintechs actually should follow? There is a benchmark, just follow it with a little bit of innovation here and there, rather than trying to reinvent the rules?
Rajnish Kumar: UNO has to be put in a slightly different way because it is owned by a bank and a bank which is known for its track record of good governance. And the design principles which have gone in designing UNO, the design principles itself ensure its security and compliance. For the fintechs, because they do not have a banking license or they are not regulated entities, we are talking about self-regulation that is different. It is like an application being designed and run by a bank is different. But for the principles, when any fintech is designing an application, there cannot be no difference as far as the approach is concerned.
If you are a part of an ecosystem and particularly the payment ecosystem which is prone to frauds, cyber crimes and data breaches, you never know. A debit card transaction on an ATM could trigger a serious data breach which happened about three-four years ago. So, the security of the system can be highly breached, So it is a very high risk. A very responsible behaviour from all players in the ecosystem is needed. Nobody is trying to kill innovation, you do innovation but innovation brings its own risk. If there was no connected world, there would be no cybersecurity risk and no data risk. So, whatever you do, there are certain risks which arise and then how do you mitigate them. Mitigation is through systems, through technology and through intent and behaviour.
You may have the best systems and technology, but if the intent and behaviour is not good, then you will not get the desired result and it can have serious consequences for the entire payment and financial system. So, responsible behaviour at every level, not at the leadership level, there are a lot of training programmes for the employees, for the board members which they have to undergo. So, unlike any other business, when you are dealing with money, the behaviour is standard and the intent has to be at a different level.
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