Tells government panel payments system a sub-set of currency, which is regulated by central bank.
The Reserve Bank of India (RBI) has opposed the idea of setting up an independent regulator outside the central bank to deal with issues relating to payments, making public its dissent note on Friday on certain recommendations of a government panel.
An inter-ministerial panel under economic affairs secretary was set up to finalise amendments to the Payment and Settlement Systems (PSS) Act, 2007.
“There is no case of having a regulator for payment systems outside the RBI,” said the dissent note submitted by the RBI representative on the committee. It stressed that the payment systems are a sub-set of currency, which is regulated by the RBI.
It also opposed the panel’s suggestion on the composition of the Payments Regulatory Board (PRB), saying it isn’t in sync with the announcement made in the finance bill. The panel has recommended that the central bank governor be replaced as chairperson of the PRB with a person appointed by the government in consultation with RBI.
“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 said.
The central bank, however, observed that it was not totally against a new PSS Bill.
“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 said in the dissent note.
There is an underlying bank account for payment systems which is under the purview of banking system regulation that is already vested with the central bank.
Settlement systems are finally posted in the books of the account of banks with the RBI to attain settlement finality.
Regulating these entities goes hand in hand with the settlement function, the central bank argued.
On the recommendation to designate the Securities Appellate Tribunal (SAT) for grievance redress, the central bank said, “It was not clear why the SAT is being brought in for resolving payment system related cases and more so when exchanges and securities markets are not under the purview of the Payment Systems Bill.”
The 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 says payment systems are actually technology-based substitutes for currency. The distribution of currency is 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. “It is not clear how non-banks can be ascribed the job of creating money via payment systems. It needs to be recalled that even banks distribute currency on behalf of the RBI and cannot create their own currency,” the RBI said.