The Reserve Bank of India (RBI) has expressed disagreement with the proposition of creating an independent Payments Regulatory Board (PRB). This proposal comes as part of the draft amendments to the Payment & Settlement Systems Act, 2007. The said act entrusts the RBI with regulatory control over payment systems in India including inter-bank transfers, ATMs, credit cards, mobile banking, and more.
Background of the Proposal
An inter-ministerial committee formed by the government put forward the proposed amendments to the Payment & Settlement Systems Act, 2007. The committee submitted a draft Payment and Settlement System Bill in 2018, suggesting the establishment of an independent PRB outside the RBI’s purview. This independent regulator for the payments sector is aimed at fostering competition, systemic stability, consumer protection, and resilience.
According to the committee, differentiating the role of RBI as a settlement function provider from its role as a payment sector regulator is essential. They recommended that the government, in consultation with the RBI, appoint the chairperson of the PRB.
The RBI’s Stand
Contrary to what’s proposed in the draft, the RBI maintains that PRB should stay within its authority and be led by the RBI governor. In this arrangement, three members each from the RBI and the government will be nominated to the board with a casting vote given to the governor.
The central bank emphasizes that a single regulator for both the banking system and the payment system promotes synergy and boosts public confidence. It also points out the established international model wherein central banks regulate their countries’ payment systems for stability reasons. Dual regulation, says the RBI, is undesirable particularly for some payment systems like cards which are issued by banks globally.
Facts and Figures about the Indian Payment Systems
| Type | Number |
|---|---|
| ATMs | Over 200,000 |
| Credit Cards | Around 50 million |
| Mobile Banking Users | About 300 million |
The Way Forward as per the RBI
Although welcoming changes, the RBI cautions that reform should not disturb the existing systems and cause potential unrest in an otherwise well-functioning structure. The central bank believes that PRB’s objectives shouldn’t be mandated by law to allow for flexibility. It also calls for considering the Ministry of Law’s views on possible jurisdictional conflicts.
The RBI further argues that innovation is generally need-based and not mandated. It disagrees with the panel’s proposal for the Securities Appellate Tribunal (SAT) to handle grievance redressal, stating that exchanges and securities markets fall outside the scope of the Payment Systems Bill.
In conclusion, while the RBI acknowledges the need for evolutionary reforms, it insists that the regulatory control over payment and settlement systems remain within its purview to ensure efficiency, stability, and public trust.
