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Report titled “Digital Banks” released by NITI Aayog

The “Digital Banks” paper from NITI Aayog presents a rationale for a licencing and regulatory framework for digital banks as well as a template and a path for implementing it. It focuses on preventing any regulatory or policy arbitrage and provides both incumbents and challengers with an even playing field. In front of other officials, the report was released by Suman Bery, CEO of NITI Aayog, Parameswaran Iyer, Senior Advisor Anna Roy.

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This paper examines the current gaps, the neglected niches, and the global regulatory best practises for licencing digital banks because it is crucial to properly use technology to meet India’s banking demands.

Recommendations of the Report:

  • The paper suggests taking a methodical approach.
  • The research also outlines the issues posed by the “partnership model” of neo-banking, which evolved in India as a result of a regulatory gap and the lack of a digital bank licence, and maps common business models in this industry.
  • An equally weighted “digital bank regulatory index” serves as the foundation for the licencing and regulatory template that the study offers.
  • This comprises four factors, entry barriers, competition, business restrictions, and technological neutrality.
  • The components of these four characteristics are then compared to Singapore, Hong Kong, the United Kingdom, Malaysia, Australia, and South Korea, five benchmark jurisdictions.

KEY POINTS:

  • The Pradhan Mantri Jan Dhan Yojana and India Stack have recently propelled India’s rapid advancements in financial inclusion.
  • Credit penetration, however, continues to be a policy concern, particularly for the country’s 63 million or more MSMEs that contribute 30% to GDP, 45% to manufacturing output, 40% to exports, and provide employment for a sizeable portion of the population.
  • Financial inclusion has become a reality for Indians over the past several years because to digitization, which was brought about by the Jan Dan-Aadhar-Mobile (JAM) trinity and Aadhaar.
  • The Unified Payments Interface (UPI), which has seen unprecedented acceptance, has only served to reinforce this. In October 2021, UPI counted more than 4.2 billion transactions totaling 7.7 trillion.
  • The platform strategy the government used when designing UPI has led to the development of worthwhile payment products on top of it.
  • Because of this, payments can now be made with a click both at retail locations and peer to peer, radically altering how money is transmitted between people.

Important Takeaways For All Competitive Exams:

  • NITI Aayog Vice Chairman: Suman Bery
  • NITI Aayog CEO: Parameswaran Iyer

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