Issue: 020

MAY 2024

Issue: 020

MAY 2024

Message from the CEO

Dear readers,

In 2021, the Reserve Bank of India (RBI) released the composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country. With data starting from 2017, the FI-Index has improved by 13 points to reach a score of 56.4 in 2022. While this indicates that India has made significant progress across parameters like access, usage and quality of financial services, there is far more to be done.

In the twentieth edition of Finwrap, we at the RBIH are glad to share updates on the steps we have taken in our mission to drive financial inclusion through innovation.

This edition also brings you updates from the RBI and global financial regulators, along with advancements in the use of quantum computing in financial services.

I hope you enjoy reading this issue of Finwrap.

Warm regards,

Rajesh Bansal
Chief Executive Officer
Reserve Bank Innovation Hub

Message from the CEO

Dear readers,

In 2021, the Reserve Bank of India (RBI) released the composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country. With data starting from 2017, the FI-Index has improved by 13 points to reach a score of 56.4 in 2022. While this indicates that India has made significant progress across parameters like access, usage and quality of financial services, there is far more to be done.

In the twentieth edition of Finwrap, we at the RBIH are glad to share updates on the steps we have taken in our mission to drive financial inclusion through innovation.

This edition also brings you updates from the RBI and global financial regulators, along with advancements in the use of quantum computing in financial services.

I hope you enjoy reading this issue of Finwrap.

Warm regards,

Rajesh Bansal
Chief Executive Officer
Reserve Bank Innovation Hub

India Fintech News

RBI Commemorates its 90th Year

The Reserve Bank of India (RBI) turned 90 this year, having started its operations on April 1, 1935. On this momentous occasion, the RBI organised the ‘RBI@90’ event in Mumbai, which saw the presence of Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das.

The RBI Governor, while delivering the welcome address, stated that as we move towards RBI@100, the RBI remains focused on ensuring a stable and strong financial system.

The Hon’ble Finance Minister noted in her address that the RBI has remarkably dealt with challenges faced by the Indian economy over the decades, including the measures taken during the COVID-19 pandemic to safeguard the financial system and the economy.

In his address, the Hon’ble Prime Minister recognised the pivotal role of the RBI in shaping India’s economic landscape and emphasised the RBI’s contribution to financial inclusion, digital payments, and transformative banking sector reforms.

RBI’s Latest Guidelines on Penal Charges Come into Effect

The RBI noticed that many Regulated Entities (REs) are charging penal interest rates that are over and above the actual interest rates in cases of defaults or non-compliance by borrowers. To counter this, the RBI had released new guidelines on “Fair Lending Practice – Penal Charges in Loan Accounts.”

The guidelines mention that penalties charged for non-compliance with material terms and conditions of the loan contract by the borrower shall be charged in the form of penalties and not as penal interest, which is added to the rate of interest charged on advances.

Also, penal charges shall not be capitalised, i.e., no further interest can be charged on penal charges.

As per the guidelines, the details relating to penal charges should be disclosed in the loan agreement, the most important terms and conditions, and on the websites of REs. REs must disclose the details of applicable penal charges while sending reminders for non-compliance with terms and conditions to the borrowers.

RBI Releases Draft Regulations for Payment Aggregators

In its draft regulations for payment aggregators, the RBI has classified online Payment Aggregators (PA – O) and Payment Aggregators that facilitate face-to-face payments (PA – P). The draft guidelines for PA – P and the entities carrying out such activity have to comply with the instructions within three months from the date of the notified regulation. The RBI will provide the date of the circular after finalising the norms.

Authorisation Criterion:

Non-bank entities currently providing PA – P services shall inform the RBI within 60 days from the issuance of the circular, about their intention to seek authorisation.

Non-bank PA – Os that are authorised as well as those whose application for authorisation is pending with the RBI have to seek the approval of the Department of Payment and Settlement Systems (DPSS), the RBI, and the Central Office (CO) within 60 calendar days from the date of the circular.

Networth Criterion:

The RBI has proposed that non-banks currently providing PA – P services shall have a minimum net worth of ₹15 crore at the time of applying to the RBI for authorisation and it should be ₹25 crore by March 31, 2028.

For new non-bank PA – P, the RBI has proposed that they shall have a minimum net worth of ₹15 crore at the time of applying and it shall be ₹25 crores by the end of the third financial year of the grant of authorisation.

Fintech News

Centre for Finance, Innovation and Technology, UK (CFIT)
has Launches Open Finance Initiatives

The CFIT was created in 2021 as a key recommendation of the Kalifa Review of UK Fintech. CFIT has already built the proofs of concept on how Open Finance can create better outcomes for UK consumers and SMEs. The pilot analysis has already been conducted by HSBC and other CFIT partners, including IBM and CRIF.

Citizen Advice (CA) and CFIT, along with other financial service providers, will deliver initial industry-driven pilots, which will enhance the CA’s capacity and capability to help a greater number of vulnerable people.

CFIT plans to help CA roll out this Open Finance solution across all its centres to improve productivity and the services that it can offer with available resources.

Barclays and other SME lenders will design and implement Open Finance solutions to accelerate SME credit assessment and loan decision-making.

Bank for International Settlements (BIS), Along with
Other Central Banks, Announces Tokenisation Project

Project Agora, announced by the Bank for International Settlements (BIS), along with the Bank of France (representing the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England, and the Federal Reserve Bank of New York on April 3, 2024 will explore how the monetary system can be improved by tokenising wholesale central bank money and commercial bank deposits.

All these public institutions will work in partnership with a large group of private financial firms, convened by the Institute of International Finance (IIF), which is the global association of the finance industry.

The primary area of focus will be to increase the speed and integrity of international payments while lowering costs. This partnership will seek to overcome various inefficiencies and challenges faced in cross-border payment systems today.

S&P Global Sustainable Releases
Data Measuring Climate Risk Exposure in US

S&P Global Sustainable releases data measuring climate hazards spanning 3,100+ US counties, 50 states, and 47,000 general obligation bond issues. The report covers nine climate hazards across four climate scenarios, which are averaged for decadal time periods from 2020s to 2090s.

The data measures exposure scores, which show the relative exposure of a region to climate change hazards in relation to overall US and globally, and exposure metrics, that calculate the percentage of a region’s GDP and population exposed to climate change.

According to Steven Bullock, MD, Global Head of Research and Methodology at S&P Global Sustainable1, the data will provide Municipal Bonds (Muni) market participants with a key tool to help understand their exposure to the physical risks of climate change and allow climate-focused investors with diverse equity and fixed income holdings to now incorporate Muni climate exposures.

Tech in Focus

Quantum Computing in Finance

Quantum Computing is a multidisciplinary field that comprises application of computer science, physics and mathematics. It utilises quantum mechanics to overcome the limitations of classic computing.

A bit is a unit of information that can store either zero or one. Instead of using conventional bits, quantum computing uses quantum bits or qubits, which can store zero and one as the basic unit of information. Thus, qubits allow coherent superposition of zero and one, i.e., a qubit can be both zero and one at the same time. Qubits can interact with each other and scale exponentially.

While performing calculations with multiple variables, every time a variable changes, the classical computer performs a new calculation. However, quantum computers can explore many paths parallelly through superposition.

Looking at the importance of quantum computing, the Indian government, in its 2020 budget had announced a National Mission on Quantum Technologies & Applications (NM-QTA) with a total budget outlay of ₹8,000 Crore for five years to be implemented by the Department of Science & Technology.

Market Potential

Quantum computing is growing rapidly in the field of finance. It is estimated that the financial services industry’s spending on quantum computing capabilities is expected to grow 233x from just $80 million in 2022 to $19 billion in 2032, growing at a 10-year CAGR of 72%.

Use cases of Quantum Computing in Finance:

Corporate Banking: Corporate banking involves multiple optimisation problems that have a vast number of variables, making overall calculations complex. Quantum computing will ensure higher accuracy in such calculations.

Risk: Quantum machines can incorporate a broader set of data variables while simulating risk and thus providing more accurate results.

Wealth Management: The use of quantum computing can be found in portfolio optimisation and derivatives pricing. Organisations can perform granular simulations to assess how different scenarios will affect different assets and create more comprehensive quantum models.

Payments: As compared to blockchain, quantum computers would offer greater security and faster payments, since the quantum state represents non falsifiable money as they can’t be cloned.

Retail Banking: Two major cases in retail banking are credit decision algorithms and collateral optimisation. Credit decision algorithms use quantum computing to analyse a broader variety of factors, while collateral optimisation uses quantum computing to incorporate more data types and values.

RBIH Updates

Launch of Digital Innovation for SHGs –
an RBIH Initiative for the Last Mile

The RBIH partnered with Canara Bank for the launch of Canara SHG e-money. It is a digital suite of banking services tailor-made for India’s 90 lakh Self-Help Groups (SHG).

It offers digital SHG onboarding and group savings account opening, digital savings and loan disbursements internally within the SHG and digital bank loan disbursements to the SHGs.

Mr. Rajesh Bansal, the CEO of RBIH said, “For SHGs, opening a bank account and getting a loan is a highly time-intensive and cumbersome physical process. This product reduces paperwork, increases process efficiency and brings costs down by two-thirds for banks while benefiting 9 crore Indian women SHG members.”

The RBIH Hosted a Climate Finance Roundtable in
Collaboration with the Indian Institute of Management
Lucknow’s Centre for Business Sustainability

The RBIH, in collaboration with IIM Lucknow’s Centre for Business Sustainability, hosted a climate finance roundtable. The theme was ‘Addressing Climate Risk of Indian Financial Institutions.’

The topics of discussion involved developing climate-tailored financial products and use of blockchain technology to verify sustainability claims.

The roundtable saw the presence of Mr. Rajesh Bansal, CEO, RBIH, Prof. Vikas Srivastava, Dean of Programmes, IIM Lucknow; and Prof. Kaushik Ranjan Bandyopadhyay, Chairperson, CBS, IIM Lucknow.

RBIH Partners with NABARD to Enhance Access to
Credit in Rural India

RBIH has partnered with the National Bank for Agriculture and Rural Development (NABARD) for the integration of the Public Tech Platform for Frictionless Credit (PTPFC).

The partnership will catalyse the digitisation of credit services across 351 Co-operative Banks, 43 Regional Rural banks, and over 1 lakh Primary Agricultural Credit Societies spread over the country.