Niti Aayog floats discussion paper on licensing and regulating 'digital banks'

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Niti Aayog on November 24 put out a discussion paper “A Proposal for Digital Banks in India: Licensing & Regulatory Regime”.

The paper examines the global scenario and recommends a new segment of regulated entities - full-stack digital banks with detailed architecture and sequencing reform being proposed.

The paper recommends a two-stage approach where in the first phase digital bank licenses can be done and in the second phase, a digital universal bank license can be done on the basis of regulatory experience gathered in stage one.

Further, it recommends a three-step approach:

Step 1: Introduce a restricted Digital Business bank license. The paper advocates allowing digital business bank license to “Nonfinancial businesses” (NFBs) in the similar lines proposed by Singapore's Monetary Authority of India (MAS).

Step 2: The applicant acquiring this restricted license enlists in the regulatory sandbox and commences operations as a Digital Business bank in the sandbox.