RBI, govt differ on Payment and Settlement Act changes
29 October 2018
The Reserve Bank of India last week released a dissent note on the inter-ministerial committee set up for finalisation of Amendments to Payment and Settlement System Act (PSS Act), 2007.
The committee under the chairmanship of secretary, Department of Economic Affairs, had a representative of the RBI as well.
The draft report prepared by the committee has been placed in public domain by the government.
However, the RBI representative submitted a dissent note on certain recommendations of the committee
Payment systems are a sub-set of currency which is regulated by the RBI as there is an underlying bank account for payment systems which is under the purview of banking system regulation which is vested with the RBI.
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.
There are certain payment systems like cards which are issued by banks globally. Dual regulation over such instruments will not be desirable.
In India, the payment system is bank-dominated. Regulation of the banking systems and payment system by the same regulator provides synergy and inspires public confidence in the payment instruments.
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 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 (PRB) must remain with the Reserve Bank and headed by the Governor, Reserve Bank of India. It may comprise 3 members nominated by the government and RBI respectively, with a casting vote for the governor to ensure smooth operations of the board. The composition of the PRB is also not in conformity with the announcements made in the Finance Bill by the presented by the finance minister, RBI representative stated in his dissenting note.