RBI opposes proposal to set up separate payments regulator

December 16, 2016 10:42 pm | Updated December 17, 2016 12:21 am IST

The report comes at a time when the Centre is pushing to boost digital payments. File Photo

The report comes at a time when the Centre is pushing to boost digital payments. File Photo

The Reserve Bank of India (RBI) has opposed a move to establish a separate entity to regulate payments and settlements, a function that is currently under the central bank’s purview.

In September, the Centre had set up a 11-member committee on Digital Payments headed by Finance Secretary Ratan Watal, and including the RBI’s former deputy governor H.R. Khan and Executive Director Chandan Sinha as its members.

One of the panel’s terms of reference was to study and recommend changes in the regulatory mechanism under various acts such as the Payments and Settlement Act, the RBI Act, and the Information Technology Act among others.

“The recommendation is that the RBI will be the regulator for SIPS (systemically important payment system) and a separate board (Payments Regulatory Board) for retail payments will be created under RBI,” the central bank said in a note to the committee’s members, opining on the proposal for making regulation of payments independent of the functioning of central banking.

The committee had suggested that the PRB be an independent body. The committee’s report, which also contains the RBI’s views, was submitted to Finance Minister Arun Jaitley earlier this month. The report comes at a time when the Centre is pushing to boost digital payments in the wake of the withdrawal of high-value currency notes. “The global experience, by and large, has been that both the SIPS and retail payment systems are under the central bank for a variety of reasons including issues of inter-connectivity between the systems and the role of the central bank as the lender of last resort (LOLR),” the RBI observed. The panel was to have laid out a roadmap for digital payments, which at present stand at 20 per cent of all transactions. A key goal is to halve India’s cash-to-GDP ratio to six per cent.

“There is no need to create confusion by artificially bifurcating payment systems for bringing them under two sets of regulators,” Mr. Khan wrote to the committee.

He added that the case for an independent regulator, ignoring the inherent advantages of the RBI’s regulatory remit, had not been made out adequately. “The idea of segregating retail payments from wholesale/systemically important payments system does not jell with the increasing global recognition of importance of retail payments system,” Mr. Khan said. The RBI has mooted a monetary-policy-committee-style structure for the PRB, where outcomes are decided independently, but implementation remains with the banking regulator.

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