RBI Issues Dissent Note Against Separate Payments Regulator

The Reserve Bank of India today made its strongly-worded dissent note public on certain recommendations of a government panel on changes to payment and settlement laws.

“There is no case of having a regulator for payment systems outside the RBI,” said the dissent note submitted by an RBI representative to the committee. “Changes should not result in 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.”

The government had set up an inter-ministerial committee headed by the economic affairs secretary to finalise amendments to the Payment and Settlement Systems Act, 2007. In its draft report, the panel suggested creation of an independent regulator Payments Regulatory Board to deal with payments related issues.

The RBI said it reproduced a copy of the note for public information on certain recommendations of the committee, in which it also had a representation.

The regulator said that it’s vested within its purview to regulate the bank account for payment systems and the 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, the RBI added.

On payments systems like cards, which are issued by banks globally, dual regulation systems is not desirable, it said. The banking watchdog also added that India’s payment system is bank-dominated and regulation of banking systems and payment system by the same regulator provides synergy and inspires public confidence.

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 RBI said. “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 Payments Regulatory Board must remain with the Reserve Bank and headed by the RBI governor, it said. The apex bank said that PRB may comprise three members nominated by the government and RBI, respectively, with a casting vote for the RBI 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, it said.

On Sept. 19, the inter-ministerial panel headed by Economic Affairs Secretary SC Garg had suggested setting up an independent Payments Regulatory Board to foster competition, consumer protection, systemic stability and resilience in payment sector after submitting its report to Finance Minister Arun Jaitley. In the Finance Act of 2017, the government amended the Payment and Settlement System Act, 2007 and provide for a PRB to be headed by the RBI Governor as ex-officio chairperson.