Watch out for risky links in the banking system—India’s economy depends on its reliability

Subscribe to enjoy similar stories.Over the course of just three days last week, India witnessed three important developments in the banking space, all of which have a significant bearing on the larger issue of financial stability. On 23 April, reports appeared that the Reserve Bank of India (RBI) had granted a non-bank called PayPoint approval to access its Centralised Payment System (CPS). The same day, finance minister Nirmala Sitharaman was reported to have met bank chiefs to discuss AI-related risks in the context of global concerns over Anthropic’s Mythos model, which is seen as a threat to the data security of financial systems.

And then on 24 April, RBI issued an order to cancel the banking licence of Paytm Payments Bank, which must start winding up operations. ­­Take these one by one. The CPS approval for a banking correspondent and issuer of pre-paid payment instruments was a first.

For long, RBI policy had been to limit access only to banks and other approved institutions like National Payments Corporation of India (NPCI), Clearing Corporation of India, Nabard and Exim Bank. Though it issued a circular some years ago indicating that fintech players would get access, approvals were tightly held. This was because core payment systems like Real Time Gross Settlement and National Electronic Funds Transfer, which are an integral part of the RBI-run CPS, can’t afford risk exposure.

This system serves as a unified platform for processing both large-value and retail transactions. It helps reduce systemic risks across the ecosystem by ensuring finality in financial settlements. Indeed, it is the very backbone of the country’s financial system.Opening the CPS to a non-bank over which RBI’s oversight is less rigorous