NASSCOM’s Feedback: NITI Aayog’s Discussion Paper on Digital Banking

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

NASSCOM’s Feedback: NITI Aayog’s Discussion Paper on Digital Banking

Apurva Singh

@apurvaa

December 31, 2021

Public Policy

303

Backdrop

In November, the NITI Aayog released a discussion paper on ““Digital Banks – A Proposal for Licensing and Regulatory Regime for India” (Discussion Paper). It describes the need for, and components of, a proposed regulatory regime for a new concept of “digital banks”. The Discussion Paper offers this solution as a response to two problems: the overarching issue of financial inclusion and the insufficiency of the existing licensing regime to address that issue:

The financial inclusion challenge. The Internet is seen as a powerful tool to leverage in addressing the challenge of financial inclusion. As the Discussion Paper notes, so far, the attention has been on leveraging the Internet in implementing reforms for payments (such as the account aggregator framework) or for improving the customer experience in banking. While these are necessary, the Internet is yet to be leveraged in the core utility banking layer to address gaps at that layer (for e.g., the gap of inadequate access to formal credit currently faced by medium, small, and micro-enterprises).
The insufficiency of the existing licensing regime. Currently, entities can only leverage the Internet in banking by picking one of three routes: by offering internet banking; by setting up a neo-bank or by setting up a payments bank.

NASSCOM’s feedback

NASSCOM’s feedback to NITI Aayog consists of two parts – how Indian banking can go digital and the need for engagement on encouraging digitisation in banking; and specific comments on the approach of, and template set out in, the paper.

How Indian banking can go digital

The recent advancements in FinTech necessitates exploring how the internet can be better leveraged to deliver banking services in India and mitigate challenges of financial inclusion. The Paper has restricted itself to present a case for a new license category of a digital bank. In this segment, we focus on a broader question - what regulatory frameworks can encourage responsible digitisation in banking? We analyse the broader question from the perspective of enabling any bank to become a digital bank; simplifying existing licensing categories, and learning from the experience of incumbent banks.

Suggestions on the template in Section VII

The Paper should clearly distinguish between a “full-stack digital business bank” and a “full-stack digital universal bank”. It may be simpler to have one concept – a “digital bank” license – and set out a sequence with 2 different steps – a restricted phase in a sandbox and then a second phase to graduate to a full-stack license (with no distinction between a “business bank” and a “universal bank”).
The Paper should clearly set out minimum paid-up capital thresholds for all stages. The Paper does not set out any such thresholds for the sequencing in stage 2. We have argued above that there should be just one license and one sequence. However, if it is decided that stages 1 and 2 should continue, then the Paper should set out minimum thresholds for both stages. Right now, the only upper cap we find in the Paper is of Rs. 200 crores for applicants seeking full-stack DBB licenses. We submit that this may not necessarily be sufficient to ensure long-term fiscal sustainability without also laying out stage 2 in more detail, so that there are additional progressions to consider. [1]
The minimum threshold for participation in the restricted phase can be raised. We do not recommend a specific number here, leaving that to the NITI Aayog to decide after due consideration of the risks involved. However, the goal should be to deter casual or trivial applications into the restricted phase. Here, we also note that, even to apply for a payments bank license, applicants had to have a minimum paid-up capital of Rs. 100 crores.[2]

You can download our detailed submission by clicking on the link below. For more information, kindly write to apurva@nasscom.in.

[1] For instance, under the Singaporean Digital Banking framework, the applicants at entry level are required to have minimum paid capital of S$ 15 Million. This increases progressively upon progression, and after being granted a digital full bank license, this has to be at S$ 1.5 Billion.[1] The licensees get 3-5 years to increase their paid-up capital to the stipulated limited. Under S. 9(1)(a) of the Singapore Banking Act, 2008, every bank in Singapore is required to have a minimum paid up capital of S$ 1.5Bn.

[2] See Reserve Bank of India, Guidelines for licensing of payments banks, (November, 2014), available at https://rbidocs.rbi.org.in/rdocs/Content/PDFs/PAYMENT271114.pdf (last accessed on December 29^th, 2021).

Digital Banking; NITI Aayog

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Download Attachment

Apurva Singh

Senior Policy Associate

Write to me for all things related to FinTech, Drones, Data and Gaming

Nasscom Public Policy Highlights | ...

Sudipto