Banks must use tech behind Bitcoin; cannot ignore digital currency: Former RBI official
Money Control News
Jan 24, 2018
Banks must accept and use blockchain, the technology behind Bitcoin and other cryptocurrencies, to expand their business rather than fighting its development and spread, a former Reserve Bank of India executive has said.
Amarendra Sahoo, former Chief General Manager and Regional Director at RBI, said that with the growing pace of virtual currencies, no regulator or nation can stop it.
Sahoo was the keynote speaker at the Bankers’ Conclave 2018, in MIT School of Business at Pune, held on Wednesday.
"Can you stop the digital currency? No...Instead of fighting the digital currency, banks should accept and adapt to the technology and make use of the blockchain technology behind it and expand their business," Sahoo said, addressing students and a panel of bankers and fintech experts.
According to him, although Bitcoin and other cryptocurrencies have disadvantages like anonymity and lack of regulations, they have the potential to govern research and other host of activities. "That is the only way you expand. Banks are going to have access to new levels," said Sahoo, who has spent 31 years at the central bank.
As an ex-banker, Sahoo said he is questioning nationalisation of banks that took place in the early 1990s as the "purpose of nationalisation of banks is not to finance big borrowers at he cost of smaller ones".
"Being with the RBI I always believed, nationalising banks was good. Now that I have moved on, I am questioning it... Although, had they not been nationalised, they would not have gone to the rural sector. But in the process, the PSBs by spreading its wings, took a hit on their balance sheets and became little inefficient as compared to the private sector banks," Sahoo said.
Banking-fintech relationship
Sahoo also said that banks have now moved on from the Kodak moment to their WhatsApp moment.
He said that the banking sector would become largely "ownership neutral", have indistinguishable business models and with the proliferation of fintech companies in the digital payments space, banks will also not have the monopoly as a medium of transfer of payments.
Among the panelists, were Vineet Dhar – Head of Retail Business, Greater Mumbai- ICICI Bank; Venkatesh Hariharan- Director, Fintech iSPIRT - Indian Software Products Industry Round Table; Sachin Seth- Partner- Financial Advisory, EY; Mukul Varshney- Director John Deere; and L N Deshmukh- Former General Manager, Bank of Maharashtra.
Dhar said banks have done a lot of innovation in retail banking in the last 5-7 years, largely in the payments space. But very few innovations have come up in the investments and borrowing spaces. "So there is a huge opportunity there where many banks and NBFCs are venturing into. Data is a valuable commodity, and with it is available in so much abundance and credit bureaus are also being active, banks must build an ecosystem with more partnerships," he said.
EY's Seth said banks must become white-label, with more non-bank players entering the space, and that banks would be differentiated on the basis of who is better at manufacturing a product and who is better at distributing it.
While Deshmukh said private banks have taught a lot to public sector banks in the retail space and the business correspondent (BC) model along with technology should aid financial inclusion as BC has been the only profitable model, Varshney of John Deere said that places where banks cannot reach, NBFCs and other payment options come into play.
To conclude in the words of Hariharan of iSPIRT, a think tank for the Indian software products industry, Aadhaar has helped open bank accounts and get mobile numbers instantly and with such progress, "we are going from data poor to being data rich".
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