In News: Recently, NITI Aayog has released a Report titled- ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for India’.
It suggested setting up Digital Banks and a licensing and regulatory framework for such Banks.
Digital Bank:
It will be defined in the Banking Regulation Act, 1949, and shall have its own balance sheet and legal existence.
It will be different from the 75 Digital Banking Units (DBUs) — announced by Finance Minister in Union Budget 2022-23 – which are being set up to push digital payments, banking and fintech innovations in underserved areas
Digital banks will be subject to prudential and liquidity norms on a par with existing commercial banks.
Findings
In recent years, India has made rapid strides in furthering Financial Inclusion (FI), catalysed by the Pradhan Mantri Jan Dhan Yojana (PMJDY) and India Stack.
The FI has been furthered by the Unified Payments Interface (UPI), which has witnessed extraordinary adoption.
The FI also resulted in Direct Benefit Transfer (DBT) through apps such as PM-KISAN and extending microcredit facilities to street vendors through PM-SVANIDHI.
India is at the cusp of operationalizing its own open banking framework.
Creating a blueprint for digital banking regulatory framework and policy offers India the opportunity to cement her position as the global leader in Fintech at the same time as solving the several public policy challenges she faces.
Recommendations
Issue of a restricted digital bank licence, the license would be restricted in terms of volume/value of customers serviced and the like.
Enlistment of the licensee in a regulatory sandbox framework enacted by the Reserve Bank of India
