RBI not keen on Niti Aayog’s digital bank proposal

With the Reserve Financial institution of India (RBI) issuing operational tips for digital banking models earlier this month, it appears to be shutters down on Niti Aayog’s proposal to subject unique digital financial institution licenses, an concept that the federal government’s think-tank had floated in November 2021.

Which means that neo-banks resembling RazorpyX, Jupiter, Niyo, Fi and Open, which had pinned hopes on turning into digital banks primarily based on the Niti Aayog’s suggestions, could should proceed with the partnership mannequin with banks.

Based on extremely positioned sources, RBI wasn’t snug handing out recent digital licenses because it may result in additional fragmentation of the market. It could even have been tough for the candidates to clear RBI’s bar on ‘fit-and-proper’ standards for financial institution promoters.

“There may be already a robust feeling inside sections of the central financial institution that maybe manner too many small finance financial institution licenses have been handed out. Barring one or two names, not many have even reached a vital mass that will be anticipated of a financial institution,” stated an individual conscious of the matter. On this context, issuing extra licenses could lead to additional fragmentation of the pie.

Whether or not this may actually assist in reaching monetary inclusion was the priority expressed by the regulator. Small Finance Banks or SFBs, which have been flagged off for monetary inclusion, now have almost 50 per cent of their branches concentrated in city and semi-urban areas. The regulator feels that the expertise with digital banks, if permitted, is probably not any completely different.

Tighter rules

Publish the BharatPe saga, the standard of promoters who run monetary entities and the power of personal fairness traders to make sure unexceptionable company governance has additionally come beneath the highlight. With fintech corporations but to ascertain themselves within the governance facet, the regulatory thought course of is that these corporations should first accustom themselves to tighter rules, after which aspire to turn out to be a financial institution.

The consensus appears to be that, it’s okay to lag nations resembling Australia, Korea, Taiwan, and Singapore which have been in a rush to subject digital financial institution licenses, reasonably than realising that the mannequin isn’t working as supposed in hindsight.

The regulator’s concern is that the licensing course of mustn’t flip into an exit automobile for giant personal fairness traders who’ve invested within the fintechs, stated an individual with direct information of the matter. To finish hypothesis round digital financial institution licenses, the RBI has put out tips for present banks to arrange unique digital banking models, to work together with prospects within the digital-first mode.

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April 27, 2022