Finmin hasn’t yet moved any draft Bill on Payments Regulatory Board for Cabinet approval
The Narendra Modi government has developed cold feet on its reported plan to set up an independent payments regulator outside the Reserve Bank of India (RBI) and is reconciled to leaving the contentious issue for the post-election government to resolve.
The finance ministry hasn’t yet moved any draft Bill on the Payments Regulatory Board (PRB) — based on the recommendations of the panel under economic affairs secretary Subhash Chandra Garg — for Cabinet approval, an official source told FE. “The Cabinet has to approve this draft Bill first and then Parliament has to ratify it. It’s unlikely to happen in the next session of Parliament, which, in any case, is a very short one due to upcoming polls,” he said.
A delay will save both the government and the central bank under new governor Shaktikanta Das any acrimony before the general election this year. The ministry’s preference for separate payments regulator had triggered a tussle between it and the RBI under then governor Urjit Patel.
The RBI under Patel had opposed the panel’s suggestions to set up a separate, independent payments regulator outside the central bank and also replace the RBI governor as the chairman of this watchdog with a person appointed by the government in consultation with the central bank. The central bank had stressed that the panel’s suggestion on the PRB’s composition wasn’t in sync with the Finance Bill 2017 (which had proposed the idea of a payments regulator under the RBI governor, before the Garg panel looked into the matter). The RBI also argued that the payment systems were a sub-set of currency, which was regulated by the central bank.
The upcoming Budget session — the last sitting of the 16th Lok Sabha — will run for just 14 days through February 13, and finance minister Arun Jaitley will present an interim Budget on February 1.
The panel under Garg was set up to finalise amendments to the Payment and Settlement Systems Act (PSSA), 2007.
“The overarching impact of monetary policy on payment and settlement systems and vice versa provides support for regulation of payment systems to be with the monetary authority,” the RBI had said in a dissent note, made public by it in October 2018, on the panel’s report. “Changes should not result in existing foundations being shaken and the potential creation of disturbances in an otherwise well-functioning and internationally-acclaimed structure as far as India is concerned,” the RBI had said.
The Garg panel had also recommended that the Securities Appellate Tribunal be designated for grievance redress. The RBI had opposed this proposal as well on grounds that exchanges and securities markets were not under the purview of the Payment Systems Bill.
The government panel had said it was important to distinguish the role of the central bank as “an infrastructure institution providing settlement function from its role as a regulator of the payment sector”. It is this role of the regulator which needs to evolve from being largely bank-centric, it had said. In its dissent note, however, the RBI had said payment systems were actually technology-based substitutes for currency. The distribution of currency was done by the RBI through the banks; the logical extension of this to payment systems has being yielding good results. Fintech companies and other non-banks have been bridging this function very well, the central bank had said.
The government had amended the PSSA in the Finance Bill 2017 to provide for the Payments Regulatory Board. The idea of the watchdog, however, was not notified.
The Garg panel had said its recommendation would broad-base composition of the proposed regulator and provide for a whole-time chairperson and four whole-time members (apart one member each nominated by the RBI and the government). “In the composition provided in the Finance Act (2017), there were three positions with RBI and three with the Central government. All the members were nominated or independent. In that design, there were no whole-time members on the PRB. The revised design proposed by this Committee seeks to addresses this gap,” the panel had said in its report in August last year.