Ambassador Gopinath Pillai, Chairman, Institute of South Asian Studies

Mr J Y Pillay Chairman, Singapore Council of Presidential Advisers

Professor Subrata Mitra, Director, ISAS

Distinguished guests

Ladies and gentlemen

1.     I would like to thank Ambassador Pillai and ISAS for inviting me to deliver the keynote address at today’s symposium on ‘India’s Changing Financial Landscape’. This is a topical issue that is receiving much attention.

2.     The financial sector is integral to the development of any economy. A well-developed financial system lays the foundation for sustainable growth, and it is only when economic growth is sustained that we can realise the gains of better education, improved healthcare and greater social well-being. It is particularly important for developing economies, like India.

3.     In the last decade, India has undertaken a series of important developments and policy decisions in the financial sector. This is significant, because it promises to uplift the lives and promote growth in a continental size country of 1.1 billion people. 

India On the Move

4.     Let me sketch out the significant developments in the Indian financial sector over the last decade.

5.     The first significant achievement is in financial inclusion, which is one of the topmost priorities of the Indian Government. In August 2014, the Indian government launched the ‘Prime Minister’s People Money Scheme’ (Pradhan Mantri Jan Dhan Yojana). The scheme envisages universal access to basic banking, insurance and pension facilities for Indian citizens, particularly amongst the lower-income groups.

6.     Today, more than 300 million people have benefitted from this scheme, with US$12 billion being deposited into the banking system. With bank accounts, they are able to receive government subsidies and to access a host of basic financial facilities and services.

7.     Second, financial liberalisation. In April 2014, the Reserve Bank of India (RBI) issued new banking licenses to the IDFC Bank and Bandhan Bank, the first in the past ten years. The RBI also introduced two new classes of banking licenses - payment banks and small finance banks - to enable small and nimble players to offer services to remote community areas, underserved urban segments and small and medium enterprises (SMEs) that have difficulty accessing banking services. 

8.     Under these new licences, payment banks will offer last mile connectivity through mobile phones, offering small savings account, easy payment and remittances services – all of which will empower SMEs. Through financial inclusion, India is also opening up the traditional banking sector to innovation and receptiveness towards new and differentiated business models. It is reminiscent of the telecommunications industry, where India skipped the phase of land line development, leaping straight towards the wireless revolution.

9.     Insolvency resolution is another area of major change. In 2016, the Indian parliament enacted the Insolvency and Bankruptcy Code as part of an overhaul of the insolvency resolution regime in India.

10.     The World Bank estimated that under the old regime, it takes 4.3 years to resolve an insolvency case in India. The Code consolidated and streamlined various unwieldy laws relating to insolvency resolution under a single legislation. Companies are subject to a 270-day time limit to implement a resolution plan.

11.     This is part of a suite of economic reforms undertaken by the Indian government to make the country a more attractive investment destination, and to encourage enterprise and entrepreneurship. In the latest World Bank report, India climbed 30 points in the ‘Ease of Doing Business’ ranking, placing the country to be among the top 100 for the first time.

12.     A fourth area is tax reform. The implementation of the Goods and Services Tax (GST) in July 2017 is regarded the most major financial reform in India since its independence. The GST subsumes all indirect taxes that were levied on goods and services and unified 17 state and federal taxes. The GST has finally created a single market within India.  The impact on domestic trade and the way business is conducted will be profound and long lasting.

13.     Fifth, a major and rather unorthodox step taken by the Indian government was the demonetisation of certain currency denominations. In November 2016, the government withdrew all existing 500 and 1,000 currency notes, as part of its attempt to eliminate the circulation of black money in the informal economy. While this has led to some hardship and disruption - particularly amongst the rural community where most transactions are cash-based - it has helped to accelerate the digitisation of financial services in India.

14.     Finally, like many other countries, the digitalisation of financial services and the ubiquity of mobile devices are changing the way financial services are consumed and delivered in India. This has also opened doors to a new generation of FinTech firms offering a wide range of financial services. Notable examples include PayTM and MobiKwik in mobile payments, and BankBazaar in personal finance management. As the digitalisation of financial services becomes more prevalent, FinTech firms can be expected to play a larger role in India’s financial sector.

An Opportunity for Collaboration

15.     What opportunities does India’s changing financial landscape hold for Singapore-India collaboration and partnership? 

16.     A joint study conducted by the Associated Chambers of Commerce of India and Ernst and Young reported that around 19 per cent of the population in India still does not have access to the formal banking system. Singapore banks can reach out to these underserved communities, particularly through digital platforms.

17.     For example, in 2016, DBS launched Digibank, a mobile-only bank in India. Digibank has no physical branches and utilises a suite of biometrics and AI technologies to provide digital banking services to consumers. In less than two years, more than 1.5 million customers have signed up for Digibank, and the customer base is expected to grow to five million by 2021.

18.     Apart from banking, another area that India and Singapore can work together is on infrastructure financing. India will need an estimated US$1.5 trillion over the next 10 years for infrastructure financing, far exceeding the capacity and appetite of the banking sector. A number of Indian firms, such as the National Thermal Power Corp Ltd and the Indian Railway Finance Corporation, have chosen to raise funds in Singapore through bond listings. This is one example of Indian corporates tapping on Singapore’s deep capital markets. Indian infrastructure projects seeking long-term institutional funds can also look to leverage the strong infrastructure financing ecosystem in Singapore, comprising multilateral development banks, private financiers, lawyers, accountants, and other professional services.

19.     The insurance sector in India also holds great promise for growth.  Up till 2016, only 30 per cent of the Indian population was covered under life insurance. A study by consultancy firm Verisk Maplecroft found that India is the most exposed country in the world to natural disasters. This risk is further exacerbated by rising urbanisation in India, as larger communities are now concentrated in small populated urban centres, many of which lack adequate infrastructure. As the leading insurance and re-insurance hub in Asia, Singapore is also well placed to help address India’s risk management needs.

FinTech Unbound 

20.     I think the most exciting area for collaboration between Singapore and India is in FinTech. This is the space where there is boundless imagination, creativity and enthusiasm, especially from our young.

21.     Singapore is harnessing technology to enhance productivity across the board, create new jobs, and deliver Government services more seamlessly and conveniently to Singaporeans. In the broad movement, FinTech is making very encouraging progress.  

22.     Two years ago, the Monetary Authority of Singapore organised its inaugural FinTech festival. The response was overwhelming, and it turned out to be the largest FinTech Festival in the world. Last year, the festival attracted more than 30,000 attendees from over 100 countries. We were honoured to have Mr Arun Jaitley, Indian Finance Minister and Minister of Corporate Affairs, deliver the keynote at the FinTech conference. Partly encouraged by this, over the last two to three years, we have put in place programs and initiatives to foster the development of FinTech.

23.     We created the regulatory sandbox to facilitate live experimentation of new ideas. These may be in the form of untested technology or unconventional business models.  Within the sandbox, some regulations are suspended for the FinTech firm, for a stipulated period. This is a useful time-out, for them to test their ideas in a contained environment, with access to a limited pool of actual customers.

24.     One example is TransferFriend, a start-up that uses blockchain and data analytics to offer a secure and low cost remittance service. Another example is PolicyPal, a start-up that helps consumers organise, understand and purchase insurance policies digitally through a mobile app. The founder’s parents ran into some mishap and she had to claim insurance for the parents. She found the whole process very difficult and this inspired her to create a start-up to consolidate the different pieces to plug the gaps. It has since graduated and emerged from the sanctuary of the sandbox, and is now an insurance broker registered with MAS.

25.     We are also streamlining our regulatory treatment of payments services and remittance services. The current regulatory model takes an entity-based approach. So there are separate regulations for payment systems and stored value facilities, and for remittance businesses. The new regime will adopt an activity-based, modular framework. We recognise that FinTech is unbundling the financial services value chain, and we have to right-size the regulations too.

26.     The modular approach will allow us to regulate new business models that offer one or only some parts of the payments value chain in a more targeted manner, compared to the current entity-based approach. This ensures that the regulations are proportionate to the risks of the activity, hence encouraging new ideas, new business models and flourishing of innovation and enterprise.  This will require a new law which we intend to introduce by the end of the year.

27.     Finally, on creating a FinTech ecosystem. We now have a FinTech innovation hub, located in the central business district, to house FinTech startups. But the life force for the FinTech ecosystem is talent. That is why we are investing in the development of talent in artificial intelligence, data and computer science. Alibaba has recently announced the establishment of an AI research centre at Nanyang Technological University, one of its two research centres outside of China.

28.     The development of FinTech has opened up new frontiers for cooperation between Singapore and India. We have made good progress on the payments front. NETS – which is Singapore’s key domestic payment system operator, is working towards establishing a payment linkage with the National Payment Corporation of India, or NPCI.

29.     In the coming year, a NETS holder in Singapore will be able to make online purchases on any NPCI e-commerce merchant website in India. In time, NETS users will be able to make payments at all 2.8 million RuPay point of sale terminals in India. Conversely, RuPay users will be able to make payments at all of NETS acceptance points in Singapore. 

30.     We are also working with the State Governments of Andhra Pradesh and Maharashtra to bolster cooperation on innovation and blockchain technologies, including cross border payments.

Conclusion

31.     I have highlighted a number of significant changes in India’s and Singapore’s financial landscape in the last decade. Technology, in particular, has been a key driver in this transformation. It has also opened up new and exciting opportunities for collaboration between our two countries. Done well, these initiatives will have a far-reaching positive impact on India - as well as Singapore, for the long term.

32.     I wish all of you a fruitful and engaging event. Thank you.