“Banks are here to stay, but banking is changing rapidly,” Shankar said while addressing an event organized by IBA here.
“It is a misconception to view fintech entities as a potential replacement for banks,” he said, stressing that these modern-age enterprises facilitate banking and do not compete for banks in any way.
On the missed opportunities front, Shankar cited the case of the hugely popular Unified Payments Interface (UPI).is i), where a large portion of business is owned by non-banking entities, as banks missed out on not investing in change from the beginning. He also said that when the central bank brought in changes last year to make recurring payments more secure, the RBI was surprised by the resistance to change displayed by large institutions in the banking world and beyond.
Shankar said that entities that resisted change put forth the idea of customer inconvenience, but added that a survey of customers actually said otherwise, highlighting the resistance of such entities to change.
He said that whenever the question of new technology adoption comes up, the options before the bank include collaboration, absorption or internalisation.
Shankar said that of the three, it is collaboration that offers the highest flexibility to banks and they should probably opt to go for it.
Shankar said that it was the high interest in private cryptocurrencies that prompted the RBI to launch a project to have its own digital currency, which would be regulated and would also have the advantages of digital currencies.
Noting that two experiments — one on wholesale and one on retail central bank digital currency — are currently underway, Shankar said the experience so far has been reassuring on the systems front.
Other parameters including the technology used, its architecture etc will be analyzed as we move forward on the experiment, he said, adding that the central bank is keen to learn from it.
There are many advantages and use cases that a cbdc offers, such as increasing users’ privacy and international payments and settlements, he said.
“Private money can only be bank money in the modern age,” Shankar said, adding that technology would help in this quest to gain trust and greater efficiency.
He said that a regulated banking system is necessary to create money, but banks need to think about what will be their business tomorrow.
Sunil Mehta, chief executive officer of the industry lobby group, said that it would not be surprising to see the lending business moving towards digital in the next three-four years.
“We are thankful to the regulators and the government for supporting our sector with initiatives like RBI Innovation Hub, Sandbox, UPI, which have helped both bankers and customers to access cost-effective solutions for financial services,” he added.