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RBI Unveils Community Cloud for Financial Sector and Proposes Fintech Repository
In a recent announcement, the Reserve Bank of India (RBI) disclosed its plans to establish a dedicated cloud facility tailored for the financial sector in India. This initiative aims to enhance the security of financial sector data while facilitating scalability and ensuring business continuity. The Indian Financial Technology and Allied Services (IFTAS), a wholly-owned subsidiary of the RBI, will take the initial responsibility for setting up and operating the cloud facility. Subsequently, the management of this infrastructure will transition to a separate entity owned by participants in the financial sector.
Additionally, the RBI is set to operationalize a fintech repository through the Reserve Bank Innovation Hub by April 2024. This repository is envisioned to house comprehensive information about fintech companies, encompassing details on their activities, products, technology stack, and financial information. Notably, the participation of fintech companies in providing information for this repository is voluntary, and the gathered data will be utilized for policy-making purposes, as stated by the RBI.
RBI Deputy Governor T Rabi Shankar clarified that the decision to establish a public cloud was not primarily driven by data sovereignty concerns but rather by the aim to enhance efficiency, especially for smaller entities and cooperative banks. Shankar emphasized the potential efficiency gains in terms of scale, citing the significant investment and skill required for individual entities to create their databases. The establishment of the cloud is intended to streamline this process and promote effective management.
However, there is currently a lack of clarity regarding the functioning of the new entity owned by the financial sector and whether it will operate similarly to the National Payments Corporation of India (NPCI), which oversees the UPI ecosystem. Details about the composition of the controlling entity and how equitable representation for smaller entities will be ensured remain undisclosed at this stage.
In addition to these initiatives, the RBI announced its intention to issue a draft circular for public comments on a regulatory framework for connected lending applicable to all regulated entities. Furthermore, the regulation of web aggregators of loan products (WALP) will be governed by a comprehensive regulatory framework, emphasizing transparency, customer centricity, and informed decision-making for borrowers. Guidelines for this framework will be issued separately.
Simultaneously, the RBI has raised the UPI transaction limit for payments to hospitals and educational institutions from ₹1 lakh to ₹5 lakh. Regarding e-mandates for subscription to mutual funds, payment of insurance premiums, and credit card bill payments, transactions up to ₹1 lakh will no longer require an additional factor of authentication, marking an increase from the current limit of ₹15,000.
In further developments, the RBI has also introduced changes to transaction limits to accommodate specific sectors. Notably, the UPI transaction limit for payments directed towards hospitals and educational institutions has been elevated from ₹1 lakh to ₹5 lakh. Moreover, with regard to e-mandates for activities such as mutual fund subscriptions, insurance premium payments, and credit card bill settlements, transactions up to ₹1 lakh will now exempt users from the requirement of an additional factor of authentication. This adjustment represents a significant increase from the previous limit of ₹15,000.
In a bid to fortify the regulatory landscape, the RBI disclosed its intention to release a draft circular, inviting public comments on a regulatory framework for connected lending applicable to all regulated entities. Concurrently, the regulation of web aggregators of loan products (WALP) will be subjected to a comprehensive regulatory framework. The overarching aim of this regulatory approach is to enhance transparency in the operations of WALPs, prioritize customer-centric practices, and empower borrowers to make well-informed choices. Detailed guidelines outlining the specifics of this framework will be issued separately.
These strategic moves by the RBI underscore the central bank's commitment to fostering technological innovation, ensuring data security in the financial sector, and establishing a robust regulatory framework that addresses the evolving dynamics of the financial landscape. As these initiatives unfold, their impact on the financial ecosystem and the extent of participation from diverse entities will become clearer, contributing to the ongoing evolution of India's financial infrastructure.
Furthermore, the RBI's proactive measures extend to the facilitation of a fintech repository, scheduled to be operationalized by the Reserve Bank Innovation Hub by April 2024. This repository is envisaged as a comprehensive database encompassing information on fintech companies, including details of their activities, products, technology infrastructure, and financial data. It is noteworthy that the submission of information to this repository by fintech firms is voluntary, with the compiled data intended for utilization in the formulation of policies, as outlined by the RBI.
Deputy Governor T Rabi Shankar clarified that the decision to establish a public cloud is driven by the objective of enhancing operational efficiency, particularly for smaller entities and cooperative banks. Shankar emphasized the economies of scale that a shared cloud infrastructure can offer, highlighting the substantial investments and expertise required for individual entities to establish their databases. The overarching goal is to initiate this cloud infrastructure and allow the system to autonomously manage its operations.
As these initiatives progress, certain aspects, such as the operational framework of the new entity owned by the financial sector and the mechanisms ensuring equitable representation for smaller entities, remain undisclosed. This signifies an ongoing development phase, and additional details are anticipated to emerge as the system matures and stakeholders provide feedback.
In summary, the RBI's multifaceted approach encompasses the establishment of a community cloud, the creation of a fintech repository, and the introduction of regulatory frameworks. These measures collectively reflect the central bank's commitment to fortifying the financial sector, fostering innovation, and adapting to the evolving needs of the industry. As the financial landscape continues to evolve, the RBI's initiatives are poised to play a pivotal role in shaping a resilient and technologically advanced financial ecosystem in India.
Additionally, the RBI's forward-thinking initiatives extend to adjustments in transaction limits tailored to specific sectors. Notably, the upward revision of the UPI transaction limit for payments to hospitals and educational institutions from ₹1 lakh to ₹5 lakh signifies a strategic move to accommodate the unique requirements of these segments. Simultaneously, the relaxation of the additional factor of authentication for e-mandates, specifically for transactions related to mutual fund subscriptions, insurance premium payments, and settling credit card bills up to ₹1 lakh, represents a substantial increase from the prior limit of ₹15,000.
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