“PRB not in conformity with Finance Bill terms”
MUMBAI: The Reserve Bank of India (RBI) has strongly argued for getting the control of Payments Regulatory Board (PRB) once the amendments to the Payment & Settlement Systems Act, 2007 is finalized.
Submitting a dissent note to the recommendations proposed by a committee with regard to the amendments to the Payment & Settlement Systems Act, the RBI underlined the need for the PRB to be brought under the central bank, adding that the Board 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.
An Inter-Ministerial Committee for finalization of amendments to the Payment & Settlement Systems Act, 2007 was formed by the Government under the chairmanship of Secretary, Department of Economic Affairs and RBI was represented in the Committee.
The draft report of the Committee has already been placed in public domain by the Government. The RBI representative has submitted a dissent note on certain recommendations of the Committee.
The dissent note has also raised the issue that the composition of the PRB is also not in conformity with the announcements made in the Finance Bill by the Finance Minister.
“The payment systems are a sub-set of currency, which is regulated by RBI. The overarching impact of Monetary Policy on payment and settlement systems and vice versa provides the support for regulation of payment systems to be with the monetary authority,” the note further said.
The RBI also said there is an underlying bank account for payment systems that is under the purview of banking system regulation and is in turn vested with the RBI, adding that 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 note went on.
Reminding that the regulation of the Payment System by the Central Bank is the dominant international model for stability consideration, the RBI argued that having the regulation and supervision over Payment and Settlement systems with the central bank will ensure holistic benefits.
Moreover, since banks are regulated by RBI, a holistic regulation by RBI would be more effective and will not result in increased compliance costs if multiple regulators exist for related systems. Almost all countries in the world have recognized this change which has gained significance in the recent past, according to the central bank.
RBI also said there has been no evidence of any inefficiency in the payment systems of India. It 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 dissent note said.
RBI stressed that it does welcome changes and is not totally against a new Payment Settlement System (PSS) Bill if indeed required. “It has to be, however, recognized that changes should not result in the existing foundations being shaken and any potential creation of disturbances in an otherwise well-functioning and internationally acclaimed structure as far as India is concerned,” RBI clarified.