The Reserve Bank of India (RBI) has released a dissent note on the Inter-Ministerial Committee for finalisation of amendments to the Payment and Settlement Systems (PSS) Act, 2007, and opposed the idea of forming an independent body to regulate payments.
The committee was formed by the government under the chairmanship of Secretary, Department of Economic Affairs. In its draft report, it had suggested the creation of an independent regulator Payments Regulatory Board (PRB) to deal with payment-related issues.
However, the RBI has rejected the recommendations through its dissent note, stating, “Payment systems are a sub-set of currency which is regulated by the RBI. The overarching impact of monetary policy on payment and settlement systems and vice versa provides support for regulation of payment systems to be with the monetary authority. There is an underlying bank account for payment systems which is under the purview of banking system regulation which is vested with the RBI.”
The note added, “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.”
The central bank further stated that the regulation of the payment system by the central bank is the “dominant international model for stability consideration.”
“Thus, having the regulation and supervision over payment and settlement systems with the central bank will ensure holistic benefits. 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,” the note read.
In cognisance with the dissent note, the RBI stated that the PRB must remain with the Reserve Bank itself and headed by the banking regulator’s governor. “It may comprise three members nominated by the government and RBI, respectively, with a casting vote for the Governor to ensure smooth operations of the Board. The compensation of the PRB is also not in conformity with the announcements made in the Finance Bill by the Finance Minister (Arun Jaitley),” it added.