The Reserve Bank of India (RBI), like the government panel on digital payments, favours setting up of an independent payments regulator.
It has proposed constituting a payments regulatory board (PRB) along the lines of the monetary policy committee (MPC) wherein the policies and regulations are taken independent of the central bank but the regulation and supervision remains with RBI.
While favouring inclusion of external members, the central bank has sought equal representation for itself like in the case of MPC.
The monetary policy committee that decides on key policy rates has six members—three appointed by the RBI and the balance are independent members appointed by the Union government.
The government’s committee on digital payments, headed by former finance secretary Ratan Watal, had recommended an independent regulator for the payments space with independent members but within the overarching framework of the central bank. The committee, which had members from the government, RBI and the industry, submitted its report to the government on 9 December.
The Watal committee had also suggested bringing payment providers that are classified as systemically important under the central bank’s regulation.
If the recommendations of the committee are accepted by the Union government, it will reinforce the move towards having independent regulators for important sectors of the economy. Over the years, the government has moved to bring in independent regulators for sectors like telecom, real estate, insurance and pension as these sectors opened up.
“I am reluctant to see a proliferation of regulators. The entire digital payments space needs to be regulated by RBI as payments are essentially banking in nature. It is important that the regulator remains within RBI to avoid any friction,” said Rahul Matthan, a partner at Trilegal. “The payments space in India is not mature enough but when you see this kind of uptake, it is important to look at the regulations,” he added.
The committee’s recommendations of setting up of an independent regulator reinforce the importance of the sector that has grown at a rapid pace over the last few years. The government’s recent push to promote cashless transactions and reduce the usage of cash follows the withdrawal of Rs500 and Rs1,000 banknotes on 9 November.
It is estimated that four out of five of all consumer payments in India are undertaken in cash. The Watal committee had estimated India’s dependency on cash imposes an estimated cost of Rs21,000 crore on account of various aspects of currency operations—including cost of printing new currency, costs of currency chest and costs of maintaining supply to ATM networks. This is excluding the external costs imposed by the use of cash, including the costs imposed by counterfeit currency and black money, the committee had said.
“For the PRB, RBI has indicated its preference is for a MPC style structure where the outcomes (policy/regulation/standards) are decided independently of RBI but the implementation (regulation and supervision of all payment systems) remains with the RBI in the present form. The proposed governance structure of PRB, a body that does not report to the central board of RBI and having external experts also as members, serves this purpose and leverages on the capabilities of RBI as the regulator of payment systems,” Chandan Sinha, executive director at RBI, said in an 8 December email that is part of the annexure of the report.
“On the composition of the PRB, the RBI has desired equal representation (by inclusion of a deputy governor and another central board director) as is the case with the MPC structure,” the email had added.