Niti Aayog has floated the idea of setting up full-stack 'digital banks', which would primarily work on the internet and other proximate channels to offer their services, instead of physical branches. These proposed banks will help mitigate the financial deepening challenges being faced in the country.
The Aayog, in a recent discussion paper titled ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for India’, chalks out a possible action plan to make such digital banks a reality with proposals for licensing and regulatory frameworks.
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 that the B R Act empowers them to. As the name suggests however, DBs will principally rely on the internet and other proximate channels to offer their services and not physical branches," it said.
Niti Aayog noted in the paper India's public digital infrastructure, especially UPI, has successfully demonstrated how to challenge established incumbents. UPI transactions have crossed the ₹4 lakh crore in value, while Aadhaar authentications have surpassed 55 lakh crore.
“Finally, India is at the cusp of operationalising its own Open banking framework," the paper said.
“These indices demonstrate India has the technology stack to fully facilitate DBs. Creating a blue-print 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," it added.
The paper also recommends a two-stage approach - a digital business bank license to begin with, followed by a Digital (Universal) Bank license after policymakers and regulators have gained experience from the former. Focus on avoiding any regulatory or policy arbitrage and giving a level playing field will be crucial.
Source: Livemint
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