NITI floats the idea of ​​full-stack digital banks, comments sought by

NITI floats the idea of ​​full-stack digital banks, comments sought by

Government think-tank NITI Aayog on Wednesday proposed setting up of full-stack ‘digital banks’ which would primarily rely on internet and other contiguous channels to offer their services, and not on physical branches, financial To face profound challenges. 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.

Digital banks or DBs are banks as defined in the Banking Regulation Act, 1949 (BR Act), the paper said.

“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.

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-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 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 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 sandbox to final stage, a full-stack digital business bank will need to bring in Rs 200 crore (equivalent to that required for a small finance bank),” it suggested.

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.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is generated automatically from a syndicated feed.)

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