A detailed architecture and sequencing of reform has been proposed in this paper, the purpose of which is to undertake stakeholder consultations. Based on the comments received, the paper will be finalised and shared as a policy recommendation from Niti Aayog.

The government think-tank Niti Aayog on Wednesday suggested setting up of full-stack ‘digital banks’ to deepen access to financial services in the country.

In a discussion paper, Niti Aayog examines the global scenario, and based on the same, recommends a new segment of regulated entities — full-stack digital banks.
A detailed architecture and sequencing of reform has been proposed in this paper, the purpose of which is to undertake stakeholder consultations. Based on the comments received, the paper will be finalised and shared as a policy recommendation from Niti Aayog.

Upon progression from the sandbox into the final stage, a full-stack digital business bank will be required to bring in `200 crore (equivalent to that required of the Small Finance bank). “Digital Banks” or DBs referred in this Paper means Banks as defined in the Banking Regulation Act, 1949 (BR Act).

“In other words, these entities will issue deposits, make loans and offer the full suite of services that the BR Act empowers them to. As the name suggests however, DBs will principally rely on the internet and other proximate channels22 to offer their services and not physical branches,” the think-tank said in the paper. However, as a natural corollary to being a “Bank” in full sense of its legal definition, it is proposed that DBs will be subject to prudential and liquidity norms at par with the incumbent commercial banks, it said.

Creating a new licensing / regulatory framework is being proposed as regulatory innovation and not as regulatory arbitrage. “

Having said that, DBs offer a differentiated proposition and as such, there is scope for differentiated treatment in adjacent areas of their operation consistent with treating them identically with incumbent commercial banks, in the critical areas of prudential and liquidity risk, it added.