Economics Prelims cum Mains

RBI opposes move for independent Payments Regulatory Board

The News

  • The Reserve Bank of India (RBI) went public with its resistance to the Centre’s proposal to set up an independent Payment Regulatory Board (PRB).



  • The ‘Committee on Digital Payments’ headed by former finance secretary Ratan P Watal pushed for a comprehensive overhaul of the regulation of digital payments in India.
  • In the Finance Act of 2017, the government amended the Payment and Settlement System Act, 2007 (PSSA) and provide for a PRB to be headed by the RBI Governor as ex-officochairperson.
  • An inter-ministerial panel has now suggested setting up an independent Payments Regulatory Board (PRB).
  • The committee, under the chairmanship of Subhash Chandra Garg, Secretary, Department of Economic Affairs, had recommended that PRB be an independent regulator outside the purview of the RBI.
  • The proposal for an independent PRB was outlined in the draft Payment and Settlement System Bill, 2018 which seeks to amend Payment & Settlement Systems Act, 2007.
  • The Reserve Bank of India (RBI) has opposed the move to have an independent Payments Regulatory Board (PRB) as envisaged by the draft proposal for amendments to the Payment & Settlement Systems Act, 2007.


About the draft Payment and Settlement Bill, 2018

  • The draft bill seeks to promote consumer protection; systemic stability and resilience; and competition and innovation, with regards to the payment system.
  • On the role of the RBI, the draft bill provides for a coordination mechanism between the PRB and the central bank.
  • It provides for the PRB to make reference to the RBI in relation to making regulations for designated payment systems.
  • It also provides the RBI with the powers to make a reference to the PRB to consider any matter, which in the opinion of the RBI is important in the context of the monetary policy.
  • The draft proposal provides PRB with sufficient powers to ensure public’s ability to transmit money smoothly and securely through payment and settlement systems.
  • On the proposed bill, The RBI had suggested that the regulation and supervision over the payment systems be retained with the RBI and also the chairperson of the PRB should be from the central bank with a casting vote.


Centre’s stand for proposing the draft Payment and Settlement System Bill, 2018

  • An independent Payments Regulatory Board (PRB) is required to foster competition, consumer protection, systemic stability and resilience in payment sector.
  • It will oversee all payment systems in the country stating that the proposed body will remain in coordination with the Reserve Bank.
  • The role of an infrastructure institution providing settlement function, currently carried out by the RBI, should be distinguished from the role of a payment sector regulator.


RBI’s stand and its justification

  • A representative of the RBI put forward the central bank’s dissent in a note before an Inter-Ministerial Committee, which is looking to finalise amendments to the Payment & Settlement Systems (PSS) Act, 2007.
  • The central bank said that the proposed board must remain with the Reserve Bank and headed by the Governor, RBI.
  • “It may comprise 3 members nominated by the Government and RBI respectively, with a casting vote for the Governor to ensure smooth operations of the Board,” the central bank added.
  • The RBI also opposed the panel’s proposal on designating the Securities Appellate Tribunal (SAT) for grievance redressal, stating that “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.”
  • The central bank’s rationale which has five key points in its dissent note.
    • There is an underlying bank account for payment systems, which is under the purview of banking system regulation, which is vested with the RBI.
    • Settlement systems are finally posted in the books of account of banks with the RBI to attain settlement finality. Regulating these entities goes hand in hand with the settlement function.
    • There are certain payment systems like cards which are issued by banks globally. Dual regulation over such instruments will not be desirable.
    • In India, the payment system is bank-dominated. Regulation of the banking systems and payment system by the same regulator provides synergy and inspires public confidence in the payment instruments.
    • Regulation of the Payment System by the Central Bank is the dominant international model for stability consideration.
  • Coming out strongly against the Inter-Ministerial Committee’s proposal to take PRB out of the RBI’s purview, the RBI said there has been no evidence of any inefficiency in payment systems of India.
  • The digital payments have made good and steady progress.
  • India is gaining international recognition as a leader in payment systems.
  • Given this, there need not be any change in a well-functioning system.
  • It said that since banks are regulated by the RBI, a holistic regulation by RBI will be more effective and not result in increased compliance costs.
  • The RBI also referred to the Watal Committee on digital payments which had recommended the establishment of the PRB within the overall structure of the RBI.
  • Earlier, the RBI had also opposed the government’s proposal to set up a separate public debt management body and the proposal was kept on hold.
  • The RBI said that it welcomes the changes but it should not result in existing foundations being shaken and the potential creation of disturbances in an otherwise well-functioning structure as far as India is concerned.



Way forward

  • The proposal for bill should be given to the law ministry for its consideration.
  • A committee can be formed for the resolution of conflict including the members of the government and the central bank.
  • All the technicalities must be assessed before taking any such step and a middle ground can be achieved with debate and discussions.

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