Page 25 - Banking Finance February 2024

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activities of scheduled commercial banks but on digital traditional Banks and challengers(Digital Banks) with an
platform only. equal opportunities and an even playing field and will
prevent any regulatory or policy arbitrage.
As far as regulatory compliance is concerned it is proposed Minimum paid-up capital requirement for a Digital Bank
that DBs will be subject to prudential and liquidity norms at
may be Rs 20 crore while being in a regulatory sandbox
par with the existing commercial banks. It has been
whereas a full-fledged digital bank would need to bring
proposed to create a new licensing / regulatory framework
in Rs 200 crore of capital.
as regulatory innovation and not as regulatory arbitrage.
The report highlighted on phase wise licensing of Digital
Bank - 1st phase starting with a restricted digital bank
Now question arises in our mind whether it is a Digital
Banking which is currently provided by many Scheduled license with a limit on the size/value of the customers.
Commercial Banks or it is different. Let's understand In the 2nd phase, the licensee will be placed in a
difference between a Digital Bank (DB) and Digital Banking regulatory sandbox, i.e. it will be under a controlled
regulatory environment of RBI. Finally, a full fledged
Unit (DBU).
Digital Bank license may be granted based on
satisfactory performance under regulatory sandbox.
Digital Banks (DB) and Digital Banking
Applicants for the proposed Digital bank to have an
Units (DBU) established track record in similar industries/business
Digital Banks (DB): from the examples of Digital Banks in such as e-commerce, payments, technology (e.g. cloud
China, have understood about Digital banks. In Indian computing, AI etc).
context: When it comes to access of key infrastructural enablers
DBs are Banks defined in the Banking regulation Act such as UPI, IMPS, Aadhar, e-KYC, CICs, ATM etc., Niti
with Digital presence only.
Aayog proposes for an equal or level playing field for a
They will accept deposits, provide loans and offer other Digital Bank and existing Commercial Banks and
services as per B.R Act. thereby suggested for an equal access to all the key
Digital bank will be an independent bank to be licensed infrastructure enablers in the Indian financial ecosystem,
under the Banking Regulation Act, 1949 and will follow as traditional banks are having.
the Reserve Bank norms par with scheduled commercial As far as Prudential / Liquidity risk regulation is
banks. concerned, it will be same for both, proposed Digital
It will have a separate balance sheet and legal bank and the incumbent scheduled commercial banks.
personality like other Scheduled Commercial Bank. Regulatory requirements for a Banking licence like risk
weights, capital adequacy, liquidity coverage ratio etc
Digital Banking Units (DBU) will be included under this head. Being a full-fledged
bank, all the necessary compliance pertaining to
A Digital Banking Unit is a specialized fixed point regulatory requirement of a commercial Banks will be
business unit or hub, set up by scheduled commercial equally applicable for Digital bank(s).
banks, providing certain minimum digital infrastructure
for delivering banking products & services digitally in Technology risks assume greater importance for a
self-service mode 24x7. Digital Bank. Cyber attacks like phishing, malware,
spyware, etc, will remain a challenge for Digital Banks,
DBUs do not have a separate legal identity and are not similar to that in case of existing brick and mortar
licensed under Banking Regulation Act, 1949.
traditional banks and also to that which have gone
Legally, they are equivalent to Bank branches or digital via net banking/ Digital Banking Units.
"banking outlets" but on digital platform.
Board-level policies and expertise in assessing evolving
NITI Aayog's report on Digital Bank and cybersecurity risks by mandating a defined norm for set
of executive directors to have relevant skill sets as in
Proposed regulatory requirements: present case of Chief Risk Officer or similar, augmented

The Niti Aayog Paper focuses on providing both by a reward and responsibility based compensation

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