Archaic laws need to be reviewed keeping in mind recent changes: DFS Secy

Joshi explained the intention behind the Budget proposals for the financial sector

Guidelines for public-sector banks to assess micro, small, and medium enterprises (MSMEs) for credit will be finalised by the Indian Banks’ Associations (IBA), says Department of Financial Services (DFS) Secretary Vivek Joshi in an interview with Harsh Kumar and Asit Ranjan Mishra in New Delhi. Joshi also spells out the ideas behind the Budget proposals for the financial sector. Edited excerpts:

The finance minister said in the Budget the financial sector vision and strategy document would be prepared and released. What is the idea behind it?
 

The financial sector vision document will be anchored by the Department of Economic Affairs (DEA). The strategy we have for Vision 2047 will be covered in this document. For example, how many banks will be needed for a Viksit Bharat, and how many global banks like HDFC Bank, ICICI Bank, and State Bank of India will be required by 2047. We need a strategy to modernise regulations and regulators in anticipation of changes where banks will not only be banking companies but also information-technology companies. We need to think about how to use the startup ecosystem to assist us in giving loans to the masses.
Currently, startups offer solutions to banks. I would prefer banks approaching startups to solve their problems. In short, we need solution-driven innovation. Unless banks understand fintech, they will not be able to survive. Private-sector banks may manage to do it, but the challenge is for public-sector banks.
 

 

How soon can this document be prepared?
 

We expect it to be completed this financial year. We have done some work. Legislation is another big area we are reviewing. We deal with around 26 laws and are considering their review. The archaic laws need to be reviewed keeping in mind the recent changes. For example, in the insurance sector, the amount required to open a company is specified in the Act concerned.
 

The insurance amendment Bill is pending. One of the areas everyone is looking for is composite licensing. How soon can it be done? 
 

It’s on the agenda of the finance ministry, but we cannot specify when it will be introduced. Consultation with industry stakeholders has been completed. It is currently under discussion.
 

On the Reserve Bank of India’s draft guidelines on project financing, has the DFS sent its suggestions to it?
 

We are still working on them. Banks must have submitted their suggestions. We will also send ours soon.
 

In the Budget, it has been mentioned that public-sector banks will build their own capabilities to assess MSMEs for credit instead of relying on external assessments. What kind of a system will this be?
 

MSME assessments are similar to things such as balance sheets, tax returns, income tax, and goods and services tax (GST). However, a credit rating is also required. Banks require external ratings, which is a cost to MSMEs. We are planning a system where even if a unit does not have a balance sheet, digital footprints will be considered, such as electricity bills, digital salary payments, and provident fund contributions. Banks will certainly not lend to defaulters. They have their own internal rating systems. They need to develop models for the future. Guidelines on transactions will be finalised by the Indian Banks’ Association.
 

The Economic Survey suggested the banking and insurance sectors must resist the temptation to pursue short-term profits at the expense of the customer. Is the DFS planning to give any direction to banks on mis-selling?

We have informed banks about mis-selling. The primary duty of banks should be to inform customers about available options for different kinds of insurance rather than pushing specific products on them. We will remind them of this again. Some banks have taken steps.
 

Banks are moving towards the qualified institutional placement (QIP) route to dilute their stakes. Will the government choose this route to follow minimum shareholding norms or go for further divestment?
 

Last year, we brought three banks under “Minimum Public Shareholding” through the QIP route, which is a significant achievement for the DFS. Similarly, we have instructed the remaining five banks to prepare action plans on how to dilute their shares. The choice of the route depends on banks’ appetite and their boards. 
 

To tackle digital frauds, especially those related to digital lending apps, will the government suggest coming up with regulations?

The incident at BOB World application was not exactly cyber fraud. In their hurry to achieve targets, some Bank of Baroda employees falsely took on board and de-boarded customers without their consent. No money was lost. But it was wrong, and we cannot justify it. We have instructed the top management of banks not to repeat such things. Action has been taken against 23 Bank of Baroda employees. Some have been charged, and some suspended. This is the message we conveyed.