Recently, an Inter-ministerial committee on payments & settlement system has recommended creating a separate regulator for the payments systems in India instead of the present in charge, RBI. Discuss how far such suggestions are valid? (200 words)
Refer – Business Standard
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
Rationale behind the decision
· The aim is to foster competition and consumer protection, systemic stability and resilience in the payments sector.
· Technology – Payments and settlement system is a new sector where technology is bringing about rapid changes.
· So, it requires a team of subject experts working independently of RBI.
· Because, working under the established RBI framework could inhibit innovation and competition.
· Overburden – RBI is already burdened with a wide array of regulatory work.
· There were concerns about the ability of RBI to provide the light as well as quick regulatory touch that a new and evolving sector such as payment services deserves.
Concerns with the new regulator
· There is a definite overlapping of the current regulatory powers of the RBI and the proposed regulations for the payments industry.
· Payment systems are a sub-set of currency, which is regulated by the RBI.
· Similarly, all payment systems have an underlying bank account, which again is regulated by the banking regulator, i.e. the RBI.
· In this scenario, taking regulation away from the RBI could create confusion.
· Also, it would be odd to have two different entities regulating what is essentially one continuous function.
· A similar problem will arise for card-based payments, which are issued by banks but can come under dual regulation.
· Also, there is an overarching impact of monetary policy on payment and settlement systems and vice-versa.
· This adds validity to the idea that regulation of payment systems remain with the monetary authority i.e. the RBI.
· Further, there is a risk that a brand new regulator may be unable to match the expertise of the RBI in carrying out regulatory duties.
· Keeping the RBI out of the loop would also defy established international practice.
Road to future
· The key to resolving such problem lies in the understanding that, Payments systems need integrated regulation not coordinated regulation.
· Meanwhile, RBI has also shown its willingness to changes, provided the overall leadership stays with it.
· A unified regulator can thus help lower the regulatory compliance costs and enable the seamless implementation of rules.
Manav 6 years
Kindly review it. Thanks.
IAS Parliament 6 years
Sahitya 6 years
Please review
IAS Parliament 6 years
