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Context

• 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").

 

Details

• 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.

 

https://www.financialexpress.com/industry/banking-finance/niti-aayog-suggests-three-step-process-for-full-stack-digital-banks/2600859/