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NITI Aayog: Report on ‘Digital Banks – A Proposal for Licensing and Regulatory Regime for India’
NITI Aayog: Report on ‘Digital Banks – A Proposal for Licensing and Regulatory Regime for India’

July 28, 2022

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The NITI Aayog has released its report on ‘Digital Banks – A Proposal for Licensing and Regulatory Regime for India(Report). Prior to this, in November, the NITI Aayog had released the first version of the Report for stakeholder consultation. (Read our comments on the first version of the Report here). Key features of the Report include:

  • The Report distinguishes Digital Banks from Digital Banking Units (DBUs). The latter were announced in the budget 2022-23, and subsequently, RBI had released guidelines on DBUs. DBUs do not have legal personality and are not separately licensed under the Banking Regulation Act, 1949. DBUs improve existing channel architecture by offering regulatory recognition to digital channel.
  • To make case for Digital Banking License, the Report highlights challenges associated with neo-banks such as limited revenue potential, potential obsolescence of the Partner Bank Core Banking System, and high cost of capital and no entry barrier.
  • The Report proposes a three-step sequence towards a digital banking license i.e., a) introducing a restricted Digital Business Bank License and a restricted Digital Consumer Bank license; b) enlisting restricted licensees in RBI’s regulatory sandbox framework; and c) relaxing restrictions on the basis of performance of licensee and granting a full Digital Bank license.
  • The Report suggests that minimum paid-up capital for a restricted Digital Business Bank in restricted phase may be INR 20 crore. In full-scale Digital Business Bank, the minimum paid-up capital may be increased to INR 200 crores. A similar approach has been proposed for the Digital Consumer banks.
  • The Report recommends that the Digital Banking license may stipulate that digital banks may have one place of business. Consistent with the RBI’s continuing progressive re-interpretation of branch mandates as specified in S. 23 of the Banking Regulation Act, to account for technology as a factor in delivery channel, the license may lay down the objective of delivering banking service to defined unbanked areas leaving the channels of delivery to be determined on the bank’s policies.

For more information, kindly write to apurva@nasscom.in and varun@nasscom.in.


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Apurva Singh
Senior Policy Associate

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