IAS Gyan

Daily News Analysis


21st July, 2022 Economy

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  • Recently, the National Institution for Transforming India ("NITI Aayog") has released a discussion paper titled Digital Banks A Proposal for Licensing & Regulatory Regime for India ("Licensing Framework").



  • The Discussion Paper has tried to resolve some of the above issues by the introduction of a full-stack digital bank license proposal that would mitigate the gaps in the existing Neo Bank Model.
  • The proposed Licensing Framework creates an enabling environment for Digital Banks to overcome the limitations by allowing them to offer a full suite of banking services including issuing deposits and making loans. This would enable Digital Banks to offer innovative and efficient products and services with unique user experiences.
  • The framework also would enhance regulatory oversight over Digital Banks, prevent uncontrolled replication of business models and protect the interest of the consumers.


Digital Banking

  • Banking that is done through the digital platform without any paperwork is referred to as digital banking.
  • Digital Banking is the automation of traditional banking services. Digital banking enables a bank’s customers to access banking products and services via an electronic/online platform. Digital banking means to digitize all of the banking operations and substitute the bank’s physical presence with an everlasting online presence, eliminating a consumer’s need to visit a branch.

Digital Product services

Benefits of Digital Banking

Digital banking aims to make life easier for the customers of a bank. Some of its benefits are

  • The convenience of banking from the comforts of home
  • 24*7 availability of access to banking functions
  • Paperless banking
  • Enables set up of automatic payments for regular utility bills
  • Facilitates online payments for online shopping etc
  • Extends banking services to remote areas
  • Reduces the risk of counterfeit currency with digital fund transfers
  • Strengthens privacy and security for customers
  • Allows misplaced credit cards to reported and blocked instantly
  • Restricts the circulation of black money
  • Lowers the minting demands of currency


Digital bank license roadmap in India

  • In the first phase, a restricted digital bank license 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 license will be contingent on satisfactory performance of the licensee in the regulatory sandbox, including salient, prudential and technological risk management.