Banks of future will be very different, says RBI governor Shaktikanta Das

Regulating the distinct segments of these banks would be a challenging task, said Shaktikanta Das.

Banks of the future would be extremely different from now, and regulating the distinct segments of these banks would be a challenging task, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday.

Therefore, an integrated framework for resolution of financial firms operating in India could be expected in the near future as that would add to the resilience of the financial system, Das said at the annual banking event of Mint.

Financial technology companies (fintechs) are posing challenges to the existing banks, but big technology companies, or BigTechs, are also entering the financial services industry in a significant way. Some BigTechs are depending on their data-network activities, while venturing into payments, money management, insurance, and lending activities.

“At present, financial services are only a small part of their business globally. But given their size and reach, their entry into financial services has potential to bring about the rapid transformation of the financial sector landscape,” Das said.

The entry of these firms have many potential benefits, and they can easily provide basic financial services to the masses at cheap cost, he said.

But the advent of fintechs and BigTechs are a challenge to banks, as well as banking regulators. While banks have to imbibe these new technology and business practices to remain competitive, banking regulators, on the other hand, Das said, “have to focus on achieving a balance between promoting innovation and applying a measured/proportional supervisory and regulatory framework.”

“All these mean that the future of banking will not be a continuation of the past.

We would see a very different banking sector, in terms of structure and business model, in the coming years,” the RBI governor said.

There would be different categories of banks. The first segment could be large Indian banks with domestic and international presence, for which merger of public sector banks are already taking place. The second segment could be mid-sized niche banks, and the third segment could be smaller private sector banks, small finance banks, regional rural banks, and co-operative banks. The fourth could be of digital players, which may act as service providers directly to customers or through banks by acting as their agents or associates.