MUMBAI: The Reserve Bank of India (RBI) on Friday has expressed its dissent on Central government’s recommendation on making the Payments Regulatory Board (PRB) an independent regulator. The central bank maintained that PRB must remain with it and should be headed by the RBI Governor.
An interministerial committee for finalisation of amendments to the Payment & Settlement Systems Act, 2007, was formed by the Central government under the chairmanship of Secretary, Department of Economic Affairs. Even RBI was represented in the committee.
However, the RBI representative, claiming that the essence of his arguments has not been factored in the recommendations, has submitted a dissent note on certain recommendations of the committee.
“The Payments Regulatory Board (PRB) must remain with the Reserve Bank and headed by the Governor, Reserve Bank of India. It may comprise three members nominated by the Government and RBI respectively, with a casting vote for the Governor to ensure smooth operations of the Board,” the RBI said in its dissent note.The note also said that “the composition of the PRB is also not in conformity with the announcements made in the Finance Bill by the Honorable Finance Minister.”
According to RBI, it is important to distinguish the role of the central bank as an infrastructure institution providing settlement function from its role as a regulator of the payments sector.
“It is not clear how non-banks can be ascribed the job of creating money via payment systems. It needs to be recalled that even banks distribute currency on behalf of the RBI and cannot create their own currency,” the central bank added.
The RBI also objected to designating SAT in resolving payment system-related cases. “It is not clear why the SAT is being brought in for resolving payment system-related cases and more so when exchanges and securities markets are not under the purview of the Payment Systems Bill,” the RBI added in its note.
While RBI has welcomed some changes, it has warned that “changes should not result in existing foundations being shaken and the potential creation of disturbances in an otherwise well-functioning and internationally acclaimed structure as far as India is concerned”.
Recommendation
On September 19, the inter-ministerial panel headed by Economic Affairs Secretary SC Garg had suggested setting up an independent PRB to foster competition, consumer protection, systemic stability and resilience in payment sector.