New Delhi: Government Think Tank NITI Aayog Proposed the establishment of full-stack on Wednesday.digital bank’, which will primarily depend on internet and other nearby channels to offer its services and not on physical branches, so as to meet the financial intensive challenges in the country.
The Commission, in a discussion paper titled ‘Digital Banks: A Proposal for Licensing and Regulatory Regime for India’, makes a case and provides a template and roadmap for a digital bank licensing and regulatory regime for the country.
are digital banks or DB banks as defined in banking regulation act, 1949 (BR Act), said the paper.
“In other words, these entities will issue deposits, make loans and offer the full suite of services for which the BR Act empowers them. As the name suggests, DBs primarily to offer their services. Internet and other contiguous channels and not physical branches,” it said.
However, the paper stated as a natural consequence for having a bank in the full sense of its legal definition, it is proposed that DBs would be subject to the same prudential and liquidity norms as existing commercial banks.
It clarified, “The new licensing/regulatory framework is being proposed as a regulatory innovation and not as regulatory arbitrage.”
The paper states that India’s public digital infrastructure, particularly UPI, has successfully demonstrated how to challenge established incumbents.
The measured UPI transactions have crossed Rs 4 lakh crore in value. Aadhaar authentication has crossed 55 lakh crore.
“Finally, India is on the verge of operating its own open banking infrastructure,” the paper said.
“These indices show that India has a plethora of technology to fully facilitate DBs. Creating a blue-print for digital banking regulatory framework and policy will enable India to address many public policy as well as fintech It provides an opportunity to consolidate her position as a global leader in the challenges she faces,” it said.
The paper also recommends a two-step approach, in which a digital business bank Licensing and Digital (Universal) Bank license to start with prior experience by policy makers and regulators. An important recommendation is to focus on avoiding any regulatory or policy arbitrage and giving equal opportunity.
“Furthermore, even with a digital business bank license, it recommends a carefully calibrated approach” that includes the issuance of a restricted digital business bank license (volume/value of customers served and so on). In context).
(of the licensee) in a regulatory sandbox framework enacted by the RBI, and issue “full-stack” digital business bank licenses (primarily contingent on satisfactory performance of the licensee in the regulatory sandbox including prudential and technical risk management), suggested in the paper. There are other steps.
While the RBI’s authority to issue licenses to a banking company is straightforward under the Banking Regulation Act, an additional step is necessary to create a licensing regime for digital business banks that allows them to offer value-added services, the paper said. their main financial business, on the same balance sheet as banking services.
It further suggested that the minimum paid-up capital for a restricted digital business bank operating in a regulatory sandbox may be proportional to its status as restricted.
While the Reserve Bank of India is the final arbiter of what numerical value is “proportional”, the paper has proposed a ladder to minimum paid-up capital through illustration.
“As per the illustration, progressing from sandbox to final stage, a full-stack digital business bank would need to bring in Rs 200 crore (equivalent to the required). micro finance bank),” it suggested.
The paper said estimates suggest that DB has a higher cost efficiency.
It also noted that the neo-bank business model prevalent in India is a function of the regulatory vacuum.
“In the absence of a license system full-stack digital bank, Fintech offering Neo-Bank proposition in India has reformed and adopted the front-end Neo-Bank model,” it said.
NITI Aayog CEO Amitabh Kanto In its proposal, it said that this discussion paper examines the global scenario, and based on that, recommends a new segment of regulated entities – full-stack digital banks.
“Based on the comments received, the paper will be finalized and shared with NITI Aayog as a policy recommendation,” he said.
While India has made rapid strides towards enabling financial inclusion, credit penetration remains a public policy challenge, especially for the country’s 63 million odd MSMEs.
The Commission, in a discussion paper titled ‘Digital Banks: A Proposal for Licensing and Regulatory Regime for India’, makes a case and provides a template and roadmap for a digital bank licensing and regulatory regime for the country.
are digital banks or DB banks as defined in banking regulation act, 1949 (BR Act), said the paper.
“In other words, these entities will issue deposits, make loans and offer the full suite of services for which the BR Act empowers them. As the name suggests, DBs primarily to offer their services. Internet and other contiguous channels and not physical branches,” it said.
However, the paper stated as a natural consequence for having a bank in the full sense of its legal definition, it is proposed that DBs would be subject to the same prudential and liquidity norms as existing commercial banks.
It clarified, “The new licensing/regulatory framework is being proposed as a regulatory innovation and not as regulatory arbitrage.”
The paper states that India’s public digital infrastructure, particularly UPI, has successfully demonstrated how to challenge established incumbents.
The measured UPI transactions have crossed Rs 4 lakh crore in value. Aadhaar authentication has crossed 55 lakh crore.
“Finally, India is on the verge of operating its own open banking infrastructure,” the paper said.
“These indices show that India has a plethora of technology to fully facilitate DBs. Creating a blue-print for digital banking regulatory framework and policy will enable India to address many public policy as well as fintech It provides an opportunity to consolidate her position as a global leader in the challenges she faces,” it said.
The paper also recommends a two-step approach, in which a digital business bank Licensing and Digital (Universal) Bank license to start with prior experience by policy makers and regulators. An important recommendation is to focus on avoiding any regulatory or policy arbitrage and giving equal opportunity.
“Furthermore, even with a digital business bank license, it recommends a carefully calibrated approach” that includes the issuance of a restricted digital business bank license (volume/value of customers served and so on). In context).
(of the licensee) in a regulatory sandbox framework enacted by the RBI, and issue “full-stack” digital business bank licenses (primarily contingent on satisfactory performance of the licensee in the regulatory sandbox including prudential and technical risk management), suggested in the paper. There are other steps.
While the RBI’s authority to issue licenses to a banking company is straightforward under the Banking Regulation Act, an additional step is necessary to create a licensing regime for digital business banks that allows them to offer value-added services, the paper said. their main financial business, on the same balance sheet as banking services.
It further suggested that the minimum paid-up capital for a restricted digital business bank operating in a regulatory sandbox may be proportional to its status as restricted.
While the Reserve Bank of India is the final arbiter of what numerical value is “proportional”, the paper has proposed a ladder to minimum paid-up capital through illustration.
“As per the illustration, progressing from sandbox to final stage, a full-stack digital business bank would need to bring in Rs 200 crore (equivalent to the required). micro finance bank),” it suggested.
The paper said estimates suggest that DB has a higher cost efficiency.
It also noted that the neo-bank business model prevalent in India is a function of the regulatory vacuum.
“In the absence of a license system full-stack digital bank, Fintech offering Neo-Bank proposition in India has reformed and adopted the front-end Neo-Bank model,” it said.
NITI Aayog CEO Amitabh Kanto In its proposal, it said that this discussion paper examines the global scenario, and based on that, recommends a new segment of regulated entities – full-stack digital banks.
“Based on the comments received, the paper will be finalized and shared with NITI Aayog as a policy recommendation,” he said.
While India has made rapid strides towards enabling financial inclusion, credit penetration remains a public policy challenge, especially for the country’s 63 million odd MSMEs.
,