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An Inter-Ministerial Committee has rejected the view of the Reserve Bank of India and suggested setting up of an independent Payments Regulatory Board (PRB).
The Committee, headed by Economic Affairs Secretary Subhash Chandra Garg, has also put forward a draft of the proposed Payment and Settlement System Bill 2018 for consideration by the Cabinet.
The members of the committee include IT Secretary Ajay Prakash Sawhney, UIDAI CEO Ajay Bhushan Pandey and RBI ED S Ganesh Kumar.
Though the committee has suggested the PRB to be an independent payments regulator, it has provided for the RBI to have significant representation on the board. It also envisages a formal mechanism for co-ordination between the RBI and the PRB so that the “regulation of payments, in so far as it may be relevant in the context of financial stability, monetary policy and credit policy is achieved harmoniously”.
According to the report made public on Tuesday, the RBI had suggested that the PRB should be with the RBI and the Chairperson of the PRB should be from the RBI and also have a casting vote. According to the RBI, this would provide the RBI with the necessary powers, in the context of its monetary policy function, to issue directions to the payment system provider(s).
The committee’s analysis of RBI suggestions stated that these were based on the consideration that only central banks can effectively regulate the payment systems.
The committee, while taking note of the RBI’s concerns, proposed that the Bill has been modified to provide experience in the central banking function as a qualification of the chairperson. To further address RBI’s concerns, the committee made changes to the Bill to provide the central bank 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 the monetary policy.
‘No evidence’
However, the RBI’s assertion that there could be an intrinsic problem in regulation of payments if they are not within the ambit of the central bank and might result in regulatory arbitrage appears to be without evidence, the committee said.
It noted that there are many jurisdictions where the central bank is the regulator of the payment systems. However, as the committee said, it is not necessary that in order to exercise its currency management function, the central bank must be the regulator of the payments sector.
The committee was constituted last November to re-examine the draft Payment and Settlement System Bill submitted by the Inter Departmental Group constituted by the DEA on March 15 last year and to finalise the draft Bill.
The final draft seeks to foster competition, consumer protection, systemic stability and resilience in payments sector and establish an independent PRB to regulate the sector, including non-banks as significant players in the payments ecosystem, and to consolidate and amend the law relating to payments.
The draft Bill is a result of the comprehensive review of the Payment and Settlement Act 2007 as announced by the Finance Minister in his Budget speech last year.
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