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Reserve Bank of India Governor Raghuram Rajan on Monday said the central bank is taking a bet on niche banks, including payments banks, to foster innovation and competition in the domestic financial landscape.
Speaking at the launch of National Payments Corporation of India’s Unified Payments Interface, Rajan said: “We want to see where they (niche banks) push the system. And so we have the payments bank licences. We want to see what they make of this whole business.”
In August 2015, the RBI had given in-principle approval to 11 entities, including Aditya Birla Nuvo Ltd, Airtel M Commerce Services, Department of Posts, Reliance Industries Ltd and Vodafone m-pesa, to launch their payments banks.
In the following month, the central bank gave in-principle approval to 10 entities, including Au Financiers, Equitas Holdings, Janalakshmi Financial Services, Suryoday Micro Finance , and Ujjivan Financial Services, to start small finance banks.
In addition to recently licensed differentiated (niche) banks such as payments banks and small finance banks, the Reserve Bank, in its monetary policy for 2016-17, said it will explore the possibilities of licensing other differentiated banks such as custodian banks and banks concentrating on whole-sale and long-term financing.
Emphasising that the RBI tends to be an informed and adaptive regulator, Rajan said: “We work with the people, who are being regulated, on the regulatory architecture and we hear them out. We look at their proposals from the perspective of the system and figure out the biases of the people making the proposals (what is in it for them and how it might affect the architecture of the proposal).”
UPI: the works
Referring to an example given by Union Bank of India chief Arun Tiwari that payments under the unified payments interface can be easily made by just using the recipient’s virtual address (to rajan@unionbank.com), the Governor, in a ligher vein, said “Let me emphasise, RBI never sends out emails asking for payments. “We have about $360 billion worth of foreign exchange reserves and we also have ₹8 lakh crore of government bonds. We really don’t need your money…we don’t send out money, we don’t also ask for your money!”
UPI is a payments solution that facilitates payments using ‘virtual address’ — e-mail id or Aadhaar number or mobile number. The virtual address acts as a payment identifier for sending and collecting money and works on single click two-factor authentication.
The UPI also provides an option for scheduling push and pull transactions for various purposes, including sharing bills among peers, utility bill payments, over the counter payments, barcode based payments.
How the UPI e-payment platform works - Click here for PDF
The RBI Governor observed that, “We have made a tremendous leap in allowing a (UPI) framework where we could have the seven players involved in the system — the customers, the merchant, their service providers, their banks and NPCI.”
However, he cautioned that somewhere along this chain, transactions can go wrong. So, there is a need to work out a system of customer complaints/ grievance redressal as well as protect the system from security breaches, fraudulent transactions, etc.
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