New Delhi: An independent Payments Regulatory Board (PRB) needs to be established to regulate the payment sector aimed at fostering competition, consumer protection, systemic stability and resilience in the payments sector, said the draft Payment and Settlement System Bill, 2018, submitted by an inter-ministerial committee for finalisation of amendments to the Payment and Settlement Act, 2007.
The committee has also submitted a report to Finance Minister Arun Jaitley along with the draft bill and sought consolidation and amendment of the laws relating to payments.
According to the committee on digital payments headed by Ratan P. Watal, former finance secretary and Principal Advisor, NITI Aayog, PRB would be established within the overall structure of Reserve Bank of India (RBI) with majority of non-RBI members nominated by the central government.
However, the draft bill has sought creation of an independent body and suggested replacing the central bank governor as chairperson with a person appointed by the government in consultation with the RBI.
The Watal committee was constituted on August 23, 2016, to review measures necessary to promote the digital payment system in the country.
The bill has suggested further changes to the composition of the PRB beyond that provided in the Finance Act, 2017.
The proposed constitution has recommended a slightly broad-based composition and provision for the whole-time chairperson and four whole-time members. In the composition provided in the Finance Act, there were three positions with the 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," said the report.
According to the proposed Bill, the PRB would only issue two types of instruments, regulations and orders (directions would also be in the form of orders), thereby reducing unnecessary multiplicity of instruments.
The Bill has 100 sections as against 38 sections in the existing Act.
The committee has modified the bill after taking into concerns of the RBI and the finance ministry, it said.
“To further address the RBI’s concerns, the committee made changes to the bill to provide the RBI with the powers to make a reference to the PRB to consider any matter, which in the opinion of the RBI, was important in the context of monetary policy."
The department of financial services (DFS) suggested that the Bill should explicitly provide for public/government ownership of at-least 51 per cent equity ownership in the National Payments Corporation of India (NPCI) and for the central government to have powers to appoint two nominee directors on the boards of payment system providers where the ownership of public sector banks was in majority or where a payment system provider was operating a payment system of national importance and the central government felt it was in public interest to appoint nominee directors.
The committee in its report said that it may not be advisable for the government to get into the ownership and management of payment systems and infrastructure systems, if the concerns can be addressed without that. “Therefore, the committee did not consider it necessary for the law to mandate government ownership or directors in payment infrastructure institutions.... The committee is of the view that suggestions pertaining to NPCI should be considered separately at an appropriate forum," it said.
The committee has also recognised the importance of non-banking companies and operators in promoting digital payments and bolstering innovation. It has recommended the government to place the bill before the Union Cabinet for its consideration.