A government committee in a draft report suggested setting up an independent Payments Regulatory Board.
The Reserve Bank of India (RBI) has rejected a government panel’s recommendation that a separate regulator for payment systems independent of the central bank be set up on the grounds that it would lead to dual regulation.
A representative of the RBI put forward the central bank’s dissent in a note before an Inter-Ministerial Committee, which is looking to finalise amendments to the Payment & Settlement Systems (PSS) Act, 2007.
The committee in a draft report put out in September suggested setting up an independent Payments Regulatory Board (PRB), saying that the role of an infrastructure institution providing settlement function, currently carried out by the RBI, should be distinguished from the role of a payment sector regulator.
The central bank said that the proposed board must remain with the Reserve Bank and headed by the Governor, RBI.
“It may comprise 3 members nominated by the Government and RBI respectively, with a casting vote for the Governor to ensure smooth operations of the Board,” the central bank added.
The central bank’s rationale
The RBI made five key points in its dissent note.
1) There is an underlying bank account for payment systems, which is under the purview of banking system regulation, which is vested with the RBI.
2) Settlement systems are finally posted in the books of account of banks with the RBI to attain settlement finality. Regulating these entities goes hand in hand with the settlement function.
3) There are certain payment systems like cards which are issued by banks globally. Dual regulation over such instruments will not be desirable.
4) In India, the payment system is bank-dominated. Regulation of the banking systems and payment system by the same regulator provides synergy and inspires public confidence in the payment instruments.
5) Regulation of the Payment System by the Central Bank is the dominant international model for stability consideration.
The central bank also pointed to the Watal Committee, which suggested the PRB be established within the overall structure of the RBI.
The ‘Committee on Digital Payments' headed by former finance secretary Ratan P Watal pushed for a comprehensive overhaul of the regulation of digital payments in India.
The RBI added that it welcomes changes and is not even against a new PSS Bill, if required.“It has to be, however, recognised that changes should not result in 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,” it added.