The Reserve Bank of India (RBI) has opposed a proposal to set up a separate and independent regulator for the payments industry in the country.
An inter-ministerial committee, set up by the Department of Economic Affairs, to finalise amendments to the Payment & Settlement Systems (PSS) Act, 2007, has proposed the establishment of an Independent Payments Regulatory Board (PRB) to foster competition and consumer protection, systemic stability and resilience in the payments sector, which is being driven by the digital payments in the country.
In a four-page dissent note, the RBI has rejected the recommendations stating: “There is no case of having a regulator for payment systems outside the RBI,” adding that it does welcome changes and is not totally against a new PSS Bill, if required. “It has to be, however, recognised that changes should not result in the existing foundations being shaken and the potential creation of disturbances in an otherwise well-functioning and internationally-acclaimed structure as far as India is concerned.”
Rejecting the government’s recommendation of having a government-appointed chairperson for the PRB, the banking regulator has suggested that the responsibility should remain with the RBI Governor. It, however, may comprise three members nominated by the government and the RBI respectively, with a casting vote for the governor to ensure smooth operations of the board.
The RBI has argued that payment systems are a sub-set of currency, which is regulated by the RBI, and that the overarching impact of monetary policy on payment and settlement systems and vice-versa provides support for the regulation of payment systems to be with the monetary authority aka RBI.
The government had appointed committee to bring in changes in the legal framework governing the payments sector, which is a $2 trillion per month industry.
The committee had mentioned that the Securities Apellate Tribunal (SAT) should look at dispute cases related to the payments, which also has been rejected.
The RBI has opposed this stating: “It is not clear why the SAT is being brought in for resolving payment system-related cases and more so when exchanges and securities markets are not under the purview of the Payment Systems Bill.”
Meanwhile, the Payment Council of India (PCI) was of the view that while the RBI’s point on “dual regulation is fair”, the payments sector has undergone a sea change in the last 7-8 years, and that there are various types of risks involved, and a risk-based regulation is the need of the hour.
“We are just hoping that the issue of PRB control does not delay the other critical points in the Bill such as risk-based regulation framework and tier-based regulatory structure for different kinds of payment systems. We can only pray that the big boys resolve their fight and implement growth-driven changes indentified in the Bill, irrespective of who controls,” said Naveen Surya, Chairman Emeritus, PCI.