What are NITI Aayog proposals for regulation of Digital Banks?

On July 20, 2022, NITI Aayog released a report on digital banks titled “A proposal for Digital Banks in India: Licensing and Regulatory Regime’’ In the report, government’s think tank has provided template and roadmap for licensing and regulatory regime for India.  NITI Aayog prepared this report on the basis of inter-ministerial consultations

Important features of the report include:

  1. NITI Aayog report seeks to avoid regulatory or policy arbitrage and provide a level playing field to incumbents and competitors.
  2. It studies the gaps and niches which remain underserved as well as the best practices of licensing digital banks, considering the need of supporting technology in an effective way. This move seeks to cater the needs of banking in India.
  3. It also maps prevalent business models in the digital domain and highlights challenges faced by ‘partnership model’ of neo-banking.

The NITI Aayog report presents following recommendations:

  1. Report recommends to issue a restricted digital bank licence (to a given applicant). License will be restricted with respect to volume/value of customers serviced.
  2. It also recommends to enlist the licensee in a regulatory sandbox framework, provided by the RBI.
  3. It asks to Issue full-scale digital bank licence.

In the report, the methodology used to provide licensing and regulatory template is based on ‘digital bank regulatory index’. It comprises four factors viz., entry barriers, competition, business restrictions and technological neutrality.

About Digital Bank

The digital bank would be a bank defined in accordance with the Banking Regulation Act, 1949. It will have its own balance sheet and legal existence. Digital banks are different from 75 Digital Banking Units (DBUs). DBUs were announced in Union Budget 2022-23.




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