NITI Aayog Releases Discussion Paper on Digital Banks Seeking Comments


NITI Aayog on 24th November 2021 has released a Discussion Paper titled “Digital Banks:A Proposal for Licensing & Regulatory Regime for India” seeking comments till 31.12.2021. The Discussion Paper recommends setting up of full-stack ‘digital banks’, which would rely on the internet and other proximate channels to offer their services and not physical branches, to bridge the current credit gap faced by MSMEs.

The Paper starts by defining the concept of “Digital Bank” and points out the promise it holds while mapping the prevalent business models. It goes on to highlight the challenges presented by the “partnership model” of neo-banking that has emerged in India as a function of regulatory vacuum and absence of a Digital Bank license.

The Paper also recommends a two-stage approach with a Digital Business Bank license to begin with a suggestion for Digital (Universal) Bank license after policymakers and regulators have gained experience from the former. Focus on avoiding any regulatory or policy arbitrage and giving a level playing field is an important recommendation.

Further it recommends a carefully calibrated approach comprising of following steps:

  • Issue of a restricted Digital Business Bank license (to a given applicant) (the license will be restricted in terms of volume/ value of customers serviced and the like).
  • Enlistment (of the licensee) in a regulatory sandbox framework enacted by the RBI.
  • Issue of a “full-stack” Digital Business Bank license (contingent on satisfactory performance of the licensee in the regulatory sandbox including saliently, prudential and technological risk management).

The Comments may be sent on the Discussion Paper not later than 31.12.2021 at annaroy@nic.inwith “Comments on Discussion Document on Digital Bank Framework” in the subject line.


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