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Reserve Bank of India Sets Up Fintech Department

The country’s central bank, the Reserve Bank of India (RBI), has set up a department to help create regulations for the financial technology sector and its upcoming central bank digital currency (CBDC). It will facilitate innovation and identify and address challenges and opportunities in the field. The bank explained that the erstwhile fintech division under the Department of Payment and Settlement Systems (DPPS) has been subsumed into it.

The agency will deal with matters related to inter-regulatory and international coordination on fintech. It will report to the RBI’s centralised administration division. Further, the department will provide a framework for research in the field that can aid policy interventions. In an internal circular, RBI said that the department will address matters related to the facilitation of constructive innovations and incubations in the fintech sector if they have wider implications for the financial sector/markets and fall under the purview of the bank. The department will be headed by Ajay Kumar Choudhary, the executive director. He will also look after the risk monitoring department and the inspection department.

RBI is working on two kinds of CBDCs, wholesale and retail. The new department will be tasked with overseeing their development. It will be administratively attached to the centralised administrative division (CAD) of the central office. A media report stated that the department is expected to address new-age challenges that arise from fintech applications, and crypto is only a part of its brief. This means that while the department will oversee cryptocurrencies and their challenges, it may not necessarily be first on its agenda.

According to a report by The Times of India, the majority of fintech start-ups had started operating as unregulated entities. In 2018, RBI created a fintech unit in the department of regulation. In 2019, RBI came out with a framework for a regulatory sandbox to provide a structured avenue for the regulator to engage with the ecosystem and to develop innovation-enabling or innovation-responsive regulations. RBI decided to push innovation primarily to bring down the cost of financial services and boost financial inclusion. As most fintech activities then were in the area of payments, the unit was transferred to the DPPS in July 2020.

Earlier this month, RBI issued a statement regarding its new Framework for Facilitating Small Value Digital Payments in Offline Mode, which allows offline digital payments up to IN₹ 200 (US$2.65) per transaction, subject to an overall limit of IN₹2,000 (US$26.9). OpenGov Asia reported that the move is an attempt to boost digital payment penetration in rural and semi-urban areas. An offline digital payment means a transaction that does not require internet or telecom connectivity.

Under the offline mode, payments can be carried out face-to-face (proximity mode) using any channel or instrument like cards, wallets, and mobile devices. These transactions will not require an additional factor of authentication (AFA). Offline transactions are expected to give a push to digital transactions in areas with poor or weak Internet or telecom connectivity, particularly in semi-urban and rural areas.

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