New Delhi: Differences persist between the government and the Reserve Bank of India (RBI), and within sections of the government, over what should be the regulatory architecture for India’s payment systems.
An inter-ministerial panel set up to finalize the Payment and Settlement System (PSS) Act has recommended that the payments regulator should be an independent regulator with the chairperson appointed by the government in consultation with RBI. This is, however, in contrast with the view of RBI, which wants the chairperson of the new regulator to be from the central bank with a casting vote.
An independent Payments Regulatory Board (PRB) needs to be established to regulate the payments sector aimed at fostering competition, consumer protection, systemic stability and resilience in the payments sector, said the draft Payment and Settlement System Bill, 2018, submitted by the committee to finalize the amendments to the Payment and Settlement Act, 2007.
The move is also not in line with the suggestion made by a panel on digital payments headed by Ratan P. Watal, former finance secretary and principal advisor, NITI Aayog. The panel had pitched for establishing PRB within the structure of RBI with a majority of non-RBI members nominated by the centre.
The Watal committee was constituted on 23 August 2016 to review measures necessary to promote the digital payments system in the country.
The inter-ministerial committee has reworked on existing framework and recommendations of the Watal committee and submitted a report to finance minister Arun Jaitley along with the draft bill, which seeks consolidation and amendment to the laws relating to payments.
The committee has also turned down the suggestion by the department of financial services to provide the government at least 50% equity ownership in the National Payments Corporation of India (NPCI). It said it does not consider it necessary for the law to mandate government ownership or directors in payment infrastructure institutions.
“The committee is of the view that suggestions pertaining to the NPCI should be considered separately at an appropriate forum,” it said. The bill suggested changes to the composition of the PRB beyond what has been provided in the Finance Act, 2017.
It has recommended a broad-based composition and provision for the whole-time chairperson and four whole-time members. In the composition provided in the Finance Act, there were three positions with RBI and three with the centre. All the members were nominated or independent. “In that design, there were no whole-time members on the PRB. The revised design proposed by this committee seeks to addresses this gap.”
According to the proposed bill, the PRB will only issue two types of instruments, regulations and orders, thereby, reducing multiplicity of instruments. The bill has 100 sections, compared to 38 sections in the existing Act. The committee has modified the bill after taking into consideration the concerns of RBI and the finance ministry, it said. “To further address the RBI’s concerns, the committee made changes to the Bill to provide the RBI with the powers to make a reference to the PRB to consider any matter, which in the opinion of the RBI, was important in the context of monetary policy.”
The committee has also recognised the importance of non-banking financial companies and operators in promoting digital payments and bolstering innovation. It has recommended the government to place the bill before the Union cabinet for its consideration.