Full-stack digital banks to meet the challenges faced in financial inclusion. Full-stack ‘digital banks’ means operations of lenders would be entirely digital, both at back-end and front-end, and there would be no physical branches.
Full-stack ‘digital banks’ that the law empowers them to, the government think-tank said in discussion paper tilted, ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for India’. “Digital banks will rely on the internet and other proximate channels to offer their services and not physical branches,” it added.
Digital banks would be subject to prudential and liquidity norms on par with the commercial banks. Niti Aayog also proposed creating a new licensing/ regulatory framework as regulatory innovation, but not as “regulatory arbitrage”.
Citing the successful UPI example, the think-tank said India has the technology stack to fully facilitate digital banks. UPI demonstrates that India is at “the cusp of operationalising its own open banking framework”, it added.
“Finally, India is at the cusp of operationalising its own Open banking framework,” the paper said.
Acknowledging the RBI’s authority to issue a license to a banking company under the Banking Regulation Act, the paper said an additional step is needed for creating a licensing regime for digital banks that allows them to extend value-added services that are complementary to their core financial business.
A full-stack digital business bank will be required to bring in Rs 200 crore, it suggested. The amount is equivalent to the money required to set up a small finance bank.
Niti Aayog CEO Amitabh Kant said the paper recommends a new segment of regulated entities — full-stack digital banks– after studying the global scenario.
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