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Informist, Tuesday, Aug 13, 2024

 

--RBI Patra: Shall look into deposit insurance outlook amid new fintech

--RBI Patra: E-rupee, pay system globalisation merit special attention

--RBI Patra: Use of e-rupee by unbanked people to aid fincl inclusion

--RBI Patra: Impact of e-rupee on deposit insurance unknown as of today

--RBI Patra: Impact of e-rupee on deposits largely unknown as of today

--RBI Patra: Deposit insurers must stay ready for tokenised deposits

--RBI Patra: Tokenised deposit risks must be modelled for fund size

--RBI Patra: Tokenised deposit risks must be modelled for premium rates

 

MUMBAI – Deposit insurers should be more resilient and future-ready for complex challenges with newer financial technologies, Reserve Bank of India Deputy Governor Michael Patra said at the International Association of Deposit Insures-Asia Pacific Regional Committee Annual Meeting and International Conference at Jaipur.

 

"We shall crystal gaze into the outlook for deposit insurance in the context of newer financial technologies, including central bank digital currencies and tokenised deposits," he said.

 

Patra also said regulators shall also delve into climate-related financial risks and the imperative of putting in place crisis preparedness and business continuity management procedures and policy frameworks. He said two digital innovations in currencies and payment systems merit special attention as both have implications for deposit insurance.

 

In the medium term, adoption of central bank digital currencies by unbanked people could enhance financial inclusion and mitigate the risk of large-scale use by the public of private or digital instruments that may not be backed by or denominated in the domestic currency.

 

However, the impact of central bank digital currencies on deposits and hence deposit insurance is largely unknown as of today, he said.

 

"The operating models and design features of each individual jurisdiction's CBDC will be a crucial factor in expanding our understanding of the balance of risks," Patra said. The digital payments space is undergoing a silent revolution and deposit insurers need to re-evaluate operational risks posed to depositors and member banks from the emergence of these 24/7 payment systems.

 

"While digital innovations can ease cross-border supply of financial services, they can also increase the likelihood of deposit insurers exposed to member banks with a significant share of non-domestic depositors and additional challenges in the case of a payout following bank default," he said.

 

Patra highlighted that the global financial landscape is changing rapidly and, for deposit insurers and other financial safety net participants, this is a race to stay ahead of the curve amid these tectonic shifts.

 

Patra further said the growing adoption and utilisation of blockchains and distributed ledger technology has given traction to tokenised deposits or digital representations of traditional bank deposits hosted on a secure blockchain.

 

He said deposit insurers must remain ready for tokenised deposits by reflecting on how to modify their mandates and coverage, considering that tokenised deposits are essentially claims on issuing banks like other deposits.

 

"Moreover, the risks posed by tokenised deposits have to be modelled for determining fund size and premium rates," he said.

 

On climate change-related financial risks, Patra said "Green Swan" events due to climate change are likely to recur with rising intensity and threats to financial stability through physical risks, and transition risks are already impacting the balance sheets and operations of banks and other financial intermediaries.

 

He further said some central banks and regulators are engaged in the design and conduct of climate stress tests with a view to informing the framing of monetary policy strategies and regulatory and supervisory approaches for climate-related financial risk management among regulated entities.  End

 

Reported by Richard Fargose

Edited by Manisha Baxla

 

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