NITI Aayog in a discussion paper said that digital banks will be subject to prudential and liquidity norms at par with existing commercial banks.
Government think-tank NITI Aayog on Wednesday proposed setting up of full-stack ‘digital banks’, which would primarily depend on internet and other contiguous channels to offer their services, and not on physical branches, financially intensive. to face the challenges. Country.
“In other words, these entities will issue deposits, make loans and offer the full suite of services that the Banking Regulation Act empowers them. As the name suggests, however, DBs primarily use the Internet and Others will depend on nearby channels,” it said in a discussion paper.
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.
“Creating a new licensing/regulatory framework is being proposed as a regulatory innovation and not a regulatory arbitrage,” it clarified. 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 ₹4 lakh crore in value. Aadhaar authentication has crossed 55 lakh crore. “Finally, India is on the verge of operating its own open banking structure,” the paper said. “These indices show that India has a plethora of technology to fully facilitate DB. Creating a blue-print for the digital banking regulatory framework and policy provides an opportunity for India to strengthen its position as a global leader in fintech as well as address multiple public policy challenges,” it said. The paper also recommends a two-stage approach, to start with digital business bank licenses and post digital (universal) bank licenses as policy makers and regulators have gained prior experience. 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 Reserve Bank of India, and issuing “full-stack” digital business bank licenses (primarily contingent on satisfactory performance of the licensee in the regulatory sandbox including prudential and technical risk management), in the paper There are other steps suggested.
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 RBI is the final arbiter of what constitutes a numerical value “proportional”, the paper has proposed a ladder to minimum paid-up capital through illustration.
“As the illustration progresses from the sandbox to the final stage, a full-stack digital business bank will need to bring in ₹200 crore (equivalent to what is required for a small 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 licensing regime for full-stack digital banks, fintechs offering neo-bank proposition in India have reformed and adopted the front-end neo-bank model,” it said.
NITI Aayog CEO Amitabh Kant in his proposal 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.
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