Making a strong case against an independent regulator for payment systems, the Reserve Bank of India in its dissent note on the proposed Payments Regulatory Board (PRB) said that the RBI Governor should be its chairperson with a casting vote. The RBI has disagreed with the PRB composition proposed by an inter-ministerial government panel, which said that a “person appointed by the government” should be the chairperson. The RBI also argued that the panel’s stand is different from the one proposed in the Finance Act, 2017, which categorically stated that the PRB “shall consist of the Governor, RBI as Chairperson.”
In its August report, the panel formed by the government for finalisation of amendments to the Payment & Settlement Systems Act, 2007 under economic affairs secretary SC Garg’s chairmanship had recommended that the PRB should be an independent regulator outside RBI’s purview. This is in contrast to what was proposed by Finance Minister Arun Jaitley in the Finance Act, 2017.
“The proposed constitution has been recommended to provide a slightly broad based composition and provision for whole-time chairperson and four whole-time members. In the composition provided in the Finance Act, there were three positions with RBI and three with the Central Government. All the members were nominated or independent. In that design, there were no whole-time members on the PRB. The revised design proposed by this Committee seeks to addresses this gap,” the committee said.
The RBI Friday argued that “payment systems are actually technology based substitutes for currency” and regulation of such systems can be best done within the ambit of the RBI. Pointing out that the composition of the PRB is not in conformity with the announcements made in the Finance Bill, the RBI said: “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 changing landscape of payments systems in the country — with the introduction of payments banks, prepaid payment instruments or wallets and proliferation of online payments — prompted the government and the RBI to review existing laws and regulations in this space. Volume of transactions on prepaid payment instruments has grown to 113.6 million as of February 2018 against 59 million in November 2016. Number of transactions made via unified payments interface has also grown to 151.7 million as of February 2018, against 0.3 million in November 2016.
While proposing to amend the Payments and Settlements Systems Act, 2007, the Finance Act, 2017 had proposed that “instead of the existing Board for Regulation and Supervision of Payments and Settlement, the Payments Regulatory Board will exercise the functions relating to the regulation and supervision of payments and settlement systems under the Act.”
The Finance Act, however, had proposed the regulatory board within the overall ambit of the RBI. The inter-ministerial committee, on the contrary, highlighted the need for an independent payments regulator separate from the RBI to address the need for the regulatory design to evolve in order to keep pace with the emerging scenario.
The panel in its report has noted the point made by RBI about various jurisdictions where the Central Bank is regulator of the payment systems. “The Committee does not disagree with this. However, jurisdictions like the United Kingdom and Australia demonstrate the fact that there are multiple regulators having concurrent jurisdictions over payment systems,” the report said. “The fact that in some jurisdictions there are regulators and supervisors which are different from the Central Banks is a proof that regulation and supervision of payment system is not a natural corollary of a Central Bank’s currency management system,” it added.