RBI, central govt spar over proposed payments regulator MAYANK JAIN
India needs an independent payments regulator, a report by a government panel set up under the Department of Economic Affairs to examine the formation of a separate payments regulatory board, said. The Reserve Bank of India (RBI), however, seems to be at odds with the structure of the proposed panel as it claimed that it is a natural function of a central bank to monitor and regulate payment systems in the country.
In the committee report, all members unanimously voted for a complete overhaul of the payments and settlements act and put forward a draft Payment and Settlement System Bill, 2018, which has 100 sections as against 38 sections in the existing act. There were, however, disagreements between the RBI and the committee on the structure of the regulatory board.
A payments regulatory board is considered to be important from the perspective of rising depth and breadth of payments systems in the country as well as the rapidly rising digital transactions. The regulatory space for payments is with the RBI, even though National Payments Corporation of India also runs a couple of newer payments systems and acts as a quasi-regulator for UPI. A separate entity was thought to be key to focused regulation of payments in India.
To this end, the government amended the Finance Act, 2017, and suggested a PRB structure with six members with the RBI governor as the committee’s chairperson. The committee would have two more members from the RBI and three members were proposed to be appointed by the government.
Meanwhile, the new draft proposes sweeping changes to the earlier structure. The committee proposes the PRB to be a seven-member board. The chairperson will be appointed by the government in consultation with the RBI and there will be one deputy chairman nominated by the Central Board of the RBI. Moreover, there will be two persons nominated by the RBI and three by the central government.
This structure hasn’t made the RBI very happy. The central bank wrote two letters to the committee on May 22 and June 14 to argue that the banking regulator is best suited to regulate the payments space. In one of the letters, the RBI gave examples of other countries such as China and Japan.
“In view of the international
experience, you may please consider retaining the regulation and supervision over the payments system with the Reserve Bank of India in the new Payment & Settlement Systems Bill,” wrote B P Kanungo, Deputy Governor, RBI, in a letter to Subhash C Garg, Secretary, Department of Economic affairs.
Kanungo added that the board should be chaired by the RBI Governor and he should have a casting vote.