Regulators should balance innovation in non-banks, mitigate risks in banks

Mumbai: There are adequate reasons for regulators and policymakers to adopt a balance between supporting growth and product innovation in the non-bank sector, and mitigating risks in the traditional banking system, said a report by the Centre for Advanced Financial Research and Learning on Tuesday. “The quality of the underwriting processes and third-party lending practices among NBFCs and FinTech companies warrant that regulators exercise high vigilance and active and continuous surveillance,” it said. Therefore, it might be important to assess the potential stability risks digital lending would pose to the larger economy in the near future as it grows,” it said/ Moreover, since the poor and the marginalized sections of the society are an important market group segment that digital lending targets, the Cafral report said that any losses in digital lending have important implications for credit availability and financial inclusion for this group. Adding this extra layer of third-party vendors can further obfuscate risks in the financial system,” it said, adding that central banks around the world are modifying regulation to strike a balance between maintaining healthy financial conditions for the macro economy and enabling an environment for innovation and development of the non-banking sector.