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Mahesh

21/07/22 06:41 AM IST

NITI Aayog Releases Report on Digital Banks

In News 
  • NITI Aayog’s report makes a case and offers a template and roadmap for a licensing and regulatory regime for digital banks.
  • It focuses on avoiding any regulatory or policy arbitrage and offers a level playing field to incumbents as well as competitors.
Major Recommendations
  • Issue of a restricted digital bank licence (to a given applicant) (the license would be restricted in terms of volume/value of customers serviced and the like).
  • Enlistment (of the licensee) in a regulatory sandbox framework enacted by the Reserve Bank of India.
  • Issue of a ‘full-scale’ digital bank licence (contingent on satisfactory performance of the licensee in the regulatory sandbox, including salient, prudential and technological risk management).
  • The report also maps prevalent business models in this domain and highlights the challenges presented by the ‘partnership model’ of neo-banking—which has emerged in India due to a regulatory vacuum and in the absence of a digital bank licence.
Methodology for Licensing 
  • The methodology for the licensing and regulatory template offered by the report is based on an equally weighted ‘digital bank regulatory index’.
  • This comprises four factors—(i) entry barriers; (ii) competition; (iii) business restrictions; and (iv) technological neutrality.
  • The elements of these four factors are then mapped against the five benchmark jurisdictions of Singapore, Hong Kong, United Kingdom, Malaysia, Australia and South Korea.
Why Licensing ? 
  • In recent years, India has made rapid strides in furthering financial inclusion, catalysed by the Pradhan Mantri Jan Dhan Yojana and India Stack.
  • However, credit penetration remains a policy challenge, especially for the nation’s 63-million-odd MSMEs that contribute 30% to GDP, 45% to manufacturing output, and 40% to exports, while creating employment for a significant section of the population.
  • A ‘whole-of-India approach’ towards financial inclusion has also resulted in Direct Benefit Transfer through apps such as PM-KISAN and extending microcredit facilities to street vendors through PM-SVANIDHI.
  • 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 under-served further within the formal financial fold.
Source- PIB 

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