Paper Number :WP36/2024
Publication Date :March 15, 2024
Following demonetization, India experienced a significant increase in cashless transactions, propelled by initiatives such as PMJDY and the digital revolution driven by e-KYC and UPI. PMJDY, launched in 2014, facilitated the opening of a remarkable 420 million bank accounts, while UPI, introduced in 2016, emerged as a leading platform for real-time payments processing, handling transactions valued at 4 trillion rupees. Additionally, the Reserve Bank of India (RBI) introduced Payments Banks, a pioneering banking model primarily focused on deposit acceptance, with offerings including checking and savings accounts, ATM or debit card issuance, and online or mobile banking services. Concurrently, the rise of Neo Banks has enriched India's banking landscape, catering to underserved demographics with frictionless, user-centric experiences and leveraging innovative technologies to address the evolving needs of small businesses, migrants, gig workers, and budget-conscious consumers. Moreover, the integration of initiatives such as India Stack, Aadhaar, and UPI Rail has ignited a payments revolution, positioning India as a global benchmark in digital banking innovation. This policy paper on NITI Aayog report [2] titled “Digital Banks - A Proposal for Licensing & Regulatory Regime for India” delves into the licensing and regulatory frameworks governing Digital and Neo banks, highlighting their transformative potential in advancing financial inclusion, fostering innovation, and enhancing India's global competitiveness in the digital banking landscape. Effective implementation and ongoing monitoring of these initiatives are crucial to realizing their full scope and ensuring sustainable growth and inclusivity in the digital banking ecosystem.
Keywords: Digital Banks (DB), Account Aggregator (AA), UPI, Banking as a Service (BaaS), Small Finance Bank (SFB), Payments Bank (PB)
JEL classification: M13, M15, M38, M48, N20, N40, O16, O32, O33, O35, O36, O38