Watal panel moots independent payments regulator

Ratan Watal panel on digital payments suggests strengthening existing laws to address privacy issues, similar treatment for banks, payments apps

Remya Nair
Updated14 Dec 2016
The govt’s digital payments panel, headed by former finance secretary Ratan Watal, was set up to suggest ways to encourage India’s movement towards a cashless economy. Photo: HT
The govt’s digital payments panel, headed by former finance secretary Ratan Watal, was set up to suggest ways to encourage India’s movement towards a cashless economy. Photo: HT

New Delhi: A government panel on digital payments has recommended an independent payments regulator within the framework of the Reserve Bank of India (RBI) and similar treatment for banks and non-banking entities in the payments space.

It has also suggested strengthening existing laws to protect consumers and their privacy.

The panel, headed by former finance secretary Ratan Watal, was constituted in August to suggest ways to encourage India’s movement towards a cashless economy.

The committee submitted its report to the government last week, exactly a month after the decision to demonetize high-value currency came into effect.

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The emphasis on digital transactions has become stronger as the invalidation of old Rs500 and Rs1,000 notes has led to a massive cash shortage in the economy. The government has set up another panel comprising state chief ministers and experts to ensure that the digital push reaches rural areas.

The Watal committee, which included representatives from banks, payment service providers and the central bank, has recommended that payments regulations should be independent of central banking.

Stopping short of recommending a regulator completely independent of RBI, it has mooted the creation of a Payments Regulatory Board (PRB) within the central bank—an independent decision making body having some members from outside RBI.

ALSO READ | Regulating the digital payment industry

The panel has also suggested strengthening the payment and settlements Act to include clauses for consumer protection. These include ensuring that the customer is not liable for losses arising from unauthorized transactions, as well as an option to approach the regulator for grievances. It has also sought to address issues on data protection and security.

The report has recommended opening up of the payment systems like the real-time gross settlement system (RTGS ) even to non-bank payment service providers.

It has also proposed that online fund transfer systems such as RTGS and NEFT (national electronic funds transfer) be operational round the clock and stressed the need to have full interoperability between banks and payment service providers as well as between the payment service providers.

The committee has suggested bringing payment providers that are classified as systemically important under the central bank’s regulation.

ALSO READ | The perils of the cashless economy narrative

The panel has also envisaged a prominent role for Aadhaar—the unique identification number given to every resident. From promoting Aadhaar as the primary identification for know-your-customer (KYC) purposes and allowing Aadhaar-based e-KYC replace all existing central KYC processes to using Aadhaar as an alternative to the permanent account number (PAN), it has sought to make the unique identification number central to all transactions in order to generate a clear financial trail.

The committee has also recommended that the government make payments only through digital channels and that it bear the costs of electronic payments where it acts as a merchant. It has also suggested waiver of customs and excise duty on parts used in micro-ATMs and point of sale machines.

The government recently announced a set of measures including incentives and waiver of fees and taxes to encourage digital modes of payment, though these are not as sweeping as the panel’s recommendations.The committee has prescribed a timeline of between one and three months for the implementation of most of its recommendations.

Some of the other recommendations include setting up a digital payment incentive fund using savings accruing from reducing cash transactions. It has also suggested that government departments levy a cash-handling charge to discourage cash transactions.

“There is a need to develop connectivity infrastructure parallel to the cashless push,” said Krishnan Dharmarajan, executive director at the Centre for Digital Financial Inclusion. “More open platforms like UPI (Unified Payments Interface) that have an interoperable framework are also important. The direct benefit transfer programmes should also be structured in a way to emphasize not on withdrawal of cash from bank accounts but on cashless transactions.”

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