The Niti Aayog on Wednesday suggested a roadmap for the setting up of full-stack digital business/consumer banks to deepen the access to financial services in the country.
The think tank also recommended a carefully calibrated three-step approach for digital bank license by the Reserve Bank of India (RBI). In the first phase, a restricted digital bank licence should be given to an applicant with restrictions in terms of volume/value of customers serviced and the like. In the second stage, the licensee will be put in a regulatory sandbox framework by the RBI.
Finally, issue of a ‘full-scale’ digital bank licence will be contingent on satisfactory performance of the licensee in the regulatory sandbox, including salient, prudential and technological risk management.
In the policy paper, the Niti Aayog said upon progression from the sandbox with an initial capital of Rs 20 crore into the final stage, a full-stack digital business/consumer bank will be required to bring in Rs 200 crore capital (equivalent to that required of the Small Finance bank).
‘Digital banks’ or DBs referred to in the paper means banks as defined in the Banking Regulation Act, 1949). In other words, these entities will issue deposits, make loans and offer the full suite of services that the Act empowers them to. As the name suggests, DBs will principally rely on the internet and other proximate channels to offer their services and not physical branches.
As a natural corollary to being a ‘bank’ in full sense of its legal definition, it is proposed that DBs will be subject to prudential and liquidity norms at par with the incumbent commercial banks. However, DBs offer a differentiated proposition and as such, there is scope for differentiated treatment in adjacent areas of their operation consistent with treating them identically with incumbent commercial banks, in the critical areas of prudential and liquidity risk, it added.
Given the ‘digital-native’ nature of banks that will operate under this licence, the licence may require one or more controlling persons of the applicant entity to have an established track record in adjacent industries such as e-commerce, payments, technology. As with other licenses (payment banks), applicants may have the option to apply in consortium. Existing neo-banks, seeking to upgrade or small finance banks/other regulated entities, are also potential eligible candidates for application.
In order that the licence and the business proposition of a Digital Business bank / Digital Consumer bank remain viable and to promote competition, it should have access to all the key infrastructure enablers in the Indian financial ecosystem such as Aadhaar e-KYC/UPI, IMPS/Central Payment Systems(NEFT/ RTGS).