The RBI is worried over plans by Big Tech giants to expand operations in India's financial sector as they have the potential of becoming dominant players in the market because of their wide network which would pose a risk to the country’s banks.
Amazon.com Inc and Google currently provide basic payment services in India but the two companies as well as Facebook have applied for licences to operate broader retail payment and settlement systems in partnership with Indian companies such as Reliance and some banks.
Major technology firms "straddle many different lines of business with sometimes opaque overarching governance structures," the Reserve Bank of India (RBI) said in its bi-annual financial stability report released on Thursday.
The plans will create governance-related challenges for regulators, it states.
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The RBI report also highlights the provision of cloud services by Big Tech, where minimising operational and in particular cyber risk is important.
Furthermore, as the digital economy expands across borders, international coordination of rules and standards becomes more pressing, the report points out.
For central banks and financial regulators, financial stability objectives may be best pursued by blending activity and entity-based prudential regulation of big techs. This is already applied in areas such as anti-money laundering and combating the financing of terrorism, it adds.
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However, the RBI report also states that there are positive outcomes to the move which could include efficiency gains and wider access to financial services for people.
The RBI’s warnings come at a time when there are sharp differences between the Indian government and the U.S. tech giants over issues such as e-commerce rules, data privacy and content posted on their platforms. Amazon, Facebook, Facebook’s subsidiary WhatsApp and Twitter have been reluctant to follow the new IT rules introduced by the government and have even moved courts to question them.
"Big Techs offer a wide range of digital financial services…of several advanced and emerging market economies. While this holds the promise of supporting financial inclusion and generating lasting efficiency gains, including by encouraging the competitiveness of banks, important policy issues arise.
Specifically, concerns have intensified around a level playing field with banks, operational risk, too-big-to-fail issues, challenges for antitrust rules, cybersecurity and data privacy," RBI said in its Financial Stability Report.
