Fintech Adoption And Financial Risk Management: Evidence From Indian Nbfcs
Abstract
The digitisation of financial services has greatly changed the way Non-Banking Financial Companies (NBFCs) operate and manage risk in India. Financial Technology (FinTech) such as artificial intelligence (AI), machine learning, big data analytics, digital lending platforms, regulatory technology (RegTech), cloud computing and application programming interfaces (API) provides new capabilities that enhance financial decision-making and risk governance. This study explores the impact of FinTech on the financial risk management of Indian NBFCs and critically looks into the new risks arising from technology based financial intermediation. It is a conceptual and analytical research design which uses secondary data from Reserve Bank of India (RBI) reports and directions, Basel Committee publications, peer-reviewed literature and other relevant institutional sources. The analysis shows that FinTech can boost the credit-risk assessment, liquidity monitoring, operational controls and fraud detection, and regulatory compliance processes with predictive analysis, automation and real-time information processing. The study, however, shows a ‘FinTech–risk management paradox’: digitalisation can help mitigate traditional financial and operational risks, but can also give rise to or exacerbate cyber security, data-privacy, algorithmic, model, third party and technology-concentration risks. The paper thus suggests that, the adoption of FinTech should not be interpreted as a risk reduction but rather a risk transformation process. It further highlights the importance of the integration of FinTech within enterprise-wide risk-management systems, better governance in the board level regarding technology, model validation, model explainability and cyber resilience, and effective oversight of FinTech and Lending Service Providers relationships. The study calls for a balanced framework comprising of a combination of technological innovation, proportionality in regulation, consumer protection, managerial accountability and financial stability for the implementation of sustainable FinTech in the Indian NBFCs.