Compelling Need Of The Hour: Digital Banks

The structure of the banking system in India can be broadly divided into scheduled banks, nonscheduled banks and development banks, however during recent times banking evolved to new horizon and changed into multi aspect branches of banking.

- Senior Manager Staff Training Centre, Powai Mumbai

Payment bank, small finance bank, neo bank etc. concepts have been formalized.

First it is important to understand the difference between payment bank & small finance bank (SFB) then only we will be able to formulate whether these banks could successful in filling void or have cemented their place in banking industry or not.

Payment Banks (PB) were essentially "narrow banks" that issue deposits, offer payments services and not issue credit in any form, thus having no asset side of the balance sheet. Small Finance Banksare full-fledged banks that focused principally on lending to small businesses. SFBs could leverage low-cost deposits to lend to micro, small and medium sector enterprises and enable financial deepening.

Even as these reforms took shape on the banking front, a broader Digital India revolution catalyzed by PMJDY, India Stack, e-KYC and UPI led a paradigm shift in the way India interacted with and consumed financial services. In parallel, India has also taken steps towards operationalizing its own version of "Open banking" through the Account Aggregator ("AA") regulatory framework enacted by the RBI. Once commercially deployed, the AA framework is envisaged to catalyse credit deepening among groups that have hitherto been under-served.

However, while regulatory innovation has helped payment system to become effective and reformed, but credit delivery side still lacking these innovation and wide spread reach. Credit delivery or credit dispensing is a challenge for innovation eco system and present setup or products could not fill this void. Despite the rapid strides India has taken to further its financial inclusion agenda, the lack of financial deepening remains a challenge, partly flowing from that inertia, the country still has large segments who have not befitted from this digital revolution.