Regulations should not create unintended barriers for financial inclusion: RBI Guv Sanjay Malhotra

Mumbai: Reserve Bank Governor Sanjay Malhotra on Wednesday said regulations should not create "unintended barriers" for deepening financial inclusion.

Speaking at the Financial Action Task Force (FATF) event here, Malhotra said policymakers should also be mindful and not be "overzealous" with their measures, adding that legitimate activities should not be stifled.

India has made substantial progress on financial inclusion with 94 per cent of adults now having a bank account, Malhotra said, adding a word of caution for regulators.

"It must be ensured that regulations do not create unintended barriers to financial inclusion. We need to be mindful of customer rights and convenience while fulfilling the due diligence requirements," he said.

The laws and regulations have to target only the illegitimate and the illicit with "surgical precision" and not be blunt tools which unintentionally end up hurting the honest, Malhotra said.

"While we continue to make our financial systems safe and secure against money laundering and terrorist financing, we as policy makers need to be mindful that our measures are not overzealous and do not stifle legitimate activities and investments," the Governor added.

Pitching for "balanced regulations", Malhotra said adopting a risk-based approach would be beneficial and added that assessing impact on people and businesses is essential.

Malhotra said stakeholders also need to coordinate better and look at avoiding the "unnecessary" process of making people repeatedly undergo the know your customer (KYC) requirements.

Speaking about technology, Malhotra said while it has enabled ease of doing business, it has also led to sophisticated means of money laundering and illicit financing.

"We are determined to further strengthen our financial system to deter and combat illicit financial activities," he said.

Deliberations at the three-day seminar will help India better implement the new privacy law in our country, he said.

Addressing the global forum, Malhotra said it would be "desirable" to make the travel rule - mandates that financial institutions and Virtual Asset Service Providers (VASPs) share specific information about the originator and beneficiary of financial transactions - technology neutral.