NITI Aayog Releases Report on Digital Banks

The Niti Aayog on July 20 suggested a roadmap for the setting up of full-stack Digital Banks (DBs) to deepen the access to financial services in the country.

Key Highlights

• The NITI Aayog 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.

• ‘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.

• ‘Digital banks’ will principally rely on the internet and other proximate channels to offer their services and not physical branches.

• It is proposed that DBs will be subject to prudential and liquidity norms at par with the incumbent commercial banks.

• India’s public digital infrastructure, especially Unified Payments Interface (UPI) has successfully demonstrated how to challenge established incumbents, it said, adding that UPI transactions measured have surpassed Rs 4 trillion in value.

Digital Banks vs Digital Bank Units (DBUs)

• Digital Banks will be different from the Digital Bank Units (DBUs).

• Finance minister Nirmala Sitharaman had in Union Budget 2022-23 announced the setting up of 75 digital banking units in 75 districts to commemorate the 75 years of India’s independence DBUs of the banks will be treated as banking outlets and each unit needs to be housed distinctly, with separate entry and exit provisions.

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