Government think tank NITI Aayog on Wednesday proposed to create digital banks.
Government think tank NITI Aayog on Wednesday proposed to create digital banks. This bank will completely depend on the Internet to take its services. There will be no need for physical branches. This will reduce the challenges of financially empowering people in the country. The Commission has released a discussion paper titled Digital Banks: A Proposal for Licensing and Regulatory Regime for India.
In this paper, NITI Aayog has given the roadmap and means for the licensing and regulatory system of digital banks for the country. The paper states that digital banks or DBs are banks as defined in the Banking Regulation Act, 1949 (BR Act). It states that in other words, these units will issue deposits, give loans and provide all the services for which the BR Act empowers them. According to the paper, however, as the name suggests, these banks will depend on the Internet and other nearby channels to offer their services and not on physical branches.
Incentive given by increasing number of UPI transactions
The paper mentions that India’s public digital infrastructure, especially UPI, has successfully demonstrated how to challenge the iconic. UPI transactions have crossed the Rs 4 lakh crore mark in terms of value. Aadhaar authentication has crossed the 55 lakh crore mark.
Ultimately, India has the capacity to operate its own open banking framework, the paper said. The paper further states that these things show that India has such technology, which can fully facilitate digital banks. Creating a blueprint for the digital banking regulatory framework and policy provides an opportunity to cement India’s position to become a global leader in fintech. And with this, he can also solve many public policy challenges before him.
Right to grant license with RBI
The paper outlines a two-tier approach, starting with a digital bank license and introducing a digital (universal) bank license after policymakers and regulators gain experience. Also with digital business bank licences, it has suggested a carefully designed approach to issue a restricted digital business bank licence.
The paper states that the RBI gets the right to license the banking company directly under the Banking Regulation Act. At the same time, an additional step needs to be taken to create a system of licensing for digital business banks, which allows them to offer value-added services, which are in sync with their core financial business.
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