tag:blogger.com,1999:blog-19649274.post2183052533625994103..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: The case for differentiated bank licensesAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-19649274.post-52298064554656555872013-08-25T16:33:03.417+05:302013-08-25T16:33:03.417+05:30A lot of RBI Regulations are dilapidated and does ...A lot of RBI Regulations are dilapidated and does not make sense. First step RBI can take is to conduct the feasibility of some age old regulatory clauses and remove the ones which doest not render any useful ness in current competitive world. Nirav Shahhttp://www.twitter.com/strangle_traitsnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-27058812707901488402013-08-17T02:47:42.035+05:302013-08-17T02:47:42.035+05:30Get rid of this monster RBI instead of all that re...Get rid of this monster RBI instead of all that regulatory chik-chikAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-29270725831001141052013-08-16T19:28:29.826+05:302013-08-16T19:28:29.826+05:30Ajay;:
The IFS, correctly, anchors the definition...Ajay;:<br /><br />The IFS, correctly, anchors the definition of banking around deposit taking. If we take this definition to its logical end, if an entity does not take deposits - its not a bank. A payment company, whose model does not entail deposits, can thus be a non-bank. Unfortunately, today such a company is not possible as a non bank cannot participate in the payment system at all.<br /><br />To make it easy, let me use an analogy. Consider the demat accounts for securities. All the securities are held by the depository which has the legal ownership of them and the Depository Participants (DPs) carry the customer accounts and facilitate transactions - buying and selling of securities. Why can't such a model work for a payment company? Can we have a situation where money is held by a few players but a larger set of players facilitate instructions that create flows between the accounts - which is effectively payments. Let's separate the money flows and the information flows. All the innovation is around how information flows around payments happen.Anonymoushttps://www.blogger.com/profile/14784434029834710720noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-14594467358064942212013-08-16T19:10:25.378+05:302013-08-16T19:10:25.378+05:30Harsh,
This got me thinking: How would this work ...Harsh,<br /><br />This got me thinking: How would this work under the draft Indian Financial Code? I think there are two parts to the story.<br /><br />The first is that the IFC clarifies the classes of financial firms that can exist. At present, in India, we have terms like NBFC and `Merchant Banker' and so on. Under the IFC, there are exactly two groups of firms. Either a firm is doing banking or payments, in which case it's regulated by RBI, or it is not, in which case it's regulated by the second regulatory agency (the UFA). The definition of finance is very general. This will open up many new and innovative lines of business that are presently infeasible. Some of this is what you might think of as a special purpose bank.<br /><br />The second line of thought is about the drafting of regulations. Under the IFC, the two main elements of financial regulation are consumer protection and micro-prudential regulation. The regulator would be obliged to make documentation, and address public comments, about the soundness of both these.<br /><br />The objectives of consumer protection would have to be achieved for all kinds of banks and payments companies, and this may well require drafting differentiated regulations. Complaints at the FRA would generate feedback about places where there are problems in consumer protection, and would encourage revisiting the drafting of regulations.<br /><br />Similarly, prudential regulation would need to be tailored to the risk profile of specialised forms of banks, such as banks that only give home loans, so as to achieve the same failure probability for all.<br /><br />All these good things are in the IFC. The real problem is one of accountability. If a regulator is lazy or ignorant, how to push towards better performance? Suppose a regulator merely writes simplistic flat regulations that are blindly applied to all banks; suppose it is tone deaf and ignores the principles of prudential regulation in the IFC. What would then happen? The IFC embeds a great deal by way of accountability mechanisms (which is what is generating some of the hostility from existing regulatory staff), which should reduce the extent to which such misbehaviour happens. Over the years, jurisprudence would develop around the key question of challenging regulations at the FSAT on the grounds that they are incompatible with the principles written in the IFC.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.com