The Reserve Bank of India (RBI) on Friday strongly opposed the Centre’s proposal to set up a separate and independent regulator for the payments industry in the country.
In a four-page dissent note, the RBI has rejected the recommendations stating, “There is no case of having a regulator for payment systems outside the RBI,” adding that it does welcome changes and is not totally against a new Payment & Settlement Systems (PSS) Bill, if required. “There is no need for any deviation and the PRB can be with the RBI,” the central bank added.
The RBI said, “It has to be, however, recognised that changes should not result in the existing foundations being shaken and the potential creation of disturbances in an otherwise well-functioning and internationally-acclaimed structure as far as India is concerned.”
Rejecting the centre’s recommendation of having a government-appointed chairperson for the PRB, the RBI has suggested that the responsibility should remain with the Governor. “It, however, may comprise three members nominated by the government and the RBI respectively, with a casting vote for the governor to ensure smooth operations of the board,” the banking regulator added.
The RBI further argued that payment systems are a sub-set of currency, which is regulated by the RBI, and that the overarching impact of monetary policy on payment and settlement systems and vice-versa provides support for the regulation of payment systems to be with the banking regulator.
Defending its stand, the RBI said payment systems are actually technology-based substitutes for currency. “The distribution of currency is done by the RBI through the banks. The logical extension of this to payment systems has being yielding good results. Fintech companies and other non-banks have been bridging this function very well. It is not clear how non-banks can be ascribed the job of creating money via payment systems. It needs to be recalled that even banks distribute currency on behalf of the RBI and cannot create their own currency,” the central bank said.
Earlier, an Inter-Ministerial Committee, set up by the Department of Economic Affairs, to finalise amendments to the Payment & Settlement Systems (PSS) Act, 2007, has proposed the establishment of an Independent Payments Regulatory Board (PRB) to foster competition and consumer protection, systemic stability and resilience in the payments sector, which is being driven by digital payments in the country.