The government’s apex think tank, the NITI Aayog is mulling bringing in a restricted digital business bank licence and a digital consumer bank licence. This move is to help in achieving technology-enabled financial inclusion in the country.
NITI Aayog has released a report called ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for India’, which argues and offers a framework for a digital bank licensing and regulatory regime for the country.
However, the report noted that the success our country has achieved on the digital payments front is yet to be seen, reaching a point in meeting the credit needs of the MSME segment of the country.
“The current credit gap and the business and policy constraints reveal a need for leveraging technology effectively to cater to these needs and bring the underserved further within the formal financial fold,” it said.
According to the report, an applicant with a restricted licence should enroll itself in the regulatory sandbox and can operate as a digital business bank/ digital consumer bank depending on the nature of such business in the sandbox.
“Aadhaar authentications have passed 55 trillion. Finally, India is at the cusp of operationalising its own open banking framework. These indices demonstrate India has the technology stack to fully facilitate DBs,” the report added.
The report elaborated that digital business banks in the restricted phase may be needed to bring in INR 20 Cr of minimum paid-up capital. Thereafter, upon progression of the same from the sandbox, a full-scale digital business bank will be needed to bring in INR 200 Cr.
Niti Aayog Vice Chairman Suman Bery said, “The report highlights the promise that full-stack digital banks hold as a potential solution for the persistent policy challenge of credit deepening. It is the next stage of financial inclusion. Technology and increased digitalisation are bound to be disruptive for the incumbents, impressing the need to provide a level playing field between different business entities for holistic growth of the sector.”
Per the report, under Section 22 of the Banking Regulation Act, the RBI has the authority to issue a licence to a banking company. However, an additional step is required when such digital banks and digital consumer banks want to create a licensing regime that allows them to offer other value-added-services, complementary to their core financial business offerings, on the same balance sheet as banking services.