Abstract:
The resurgence of COVID-19 in India, coupled with renewed state-level restrictions, has generated uncertainty surrounding the nation’s economic growth. However, India’s fiscal and monetary authorities are equipped to mitigate the pandemic’s impact, as demonstrated by the recent recommendations from the Reserve Bank of India (RBI). This paper analyzes the statement made by RBI Governor Shaktikanta Das on April 7, 2021, which underscores the significance of contactless payment systems and introduces measures aimed at enhancing digital financial inclusion. The proposal permits non-banking entities such as Prepaid Payment Instrument (PPI) issuers, Card Networks, and White Label ATMs to access RTGS and NEFT systems directly, reducing settlement risk and expanding digital services across India. By increasing transaction limits for KYC-compliant wallets and enabling inter-wallet transfers, these initiatives aim to foster interoperability and deepen the digital payment ecosystem, particularly in underserved regions. Additionally, cash withdrawal facilities for full-KYC non-banking PPI users are proposed to address accessibility issues in rural areas lacking banking infrastructure. This analysis explores how these recommendations, if implemented, could broaden financial access for India’s unbanked population, thereby
advancing the RBI’s objective of financial inclusion and providing sustainable, accessible banking alternatives in the COVID-19 era and beyond.
Keywords: Here COVID-19 impact on economy, Reserve Bank of India (RBI), Financial inclusion
During the increase in COVID-19 infections and consequent with the tightening of restrictions
by some state governments have added uncertainty to the economic growth outlook. We are now
better equipped in India to face the challenges faced by the resurgence of infections. Thankfully,
Fiscal and monetary authorities are prepared to work towards limiting the impact on COVID-19
and contain the situation. The proposition put forth by the monetary policy committee has
realized the same and focused on regulating contactless payment mechanisms. These are our
views on the statement made by RBI governor Shaktikanta Das.
The statement dated 7/04/20211 has recognized the importance of contactless payments, especially, in the context of Prepaid Payment Instrument (PPI) issuers. Earlier non-banking entities like Prepaid Payment Instrument (PPI) issuers, Card Networks, White Label ATMs, and Trade Receivables Discounting System (TReDS) platforms were regulated by the Reserve Bank of India through Payment and Settlements System Act, 20072. The recommendation made in the said statement will facilitate the aforesaid entities to take a direct membership of the RTGS and NEFT3, this recommendation will minimize the settlement risk in the financial system and enhance the reach of digital services to all user segments. The proposed recommendation if implemented will increase the penetration of such entities in the payment market, therefore,
- Governor’s note point no- 29, 30, 31, PR15GOVERNOR5AA91FD102FB403291B57E2BEDD74D54.PDF (rbi.org.in), accessed date
08/04/2021 - List of banking PPIs, https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2491 accessed date 08/04/2021 see also List of
non-banking PPIs and other platforms https://m.rbi.org.in/Scripts/PublicationsView.aspx? - Master Directions on Accessed Criteria for Payment Systems, https://www.rbi.org.in/SCRIPTS/NotificationUser.aspx?Id=10833
accessed date 08/04/2021
enabling Non-Banking PPIs to get direct memberships which will be a commendable step
towards interoperability of wallets. As per the Interoperability guidelines4, there was no provision for inter-wallet transfers. However, interoperability within the fully KYC compliant non-banking PPI and banks were allowed 5. The monetary limits about the same have been revised from Rs. 1 lakhs to Rs. 2 lakhs which shall provide for an incentive to the people who increasingly opt for wallet transactions. The statement mandates inter-wallet transfers, which in turn will allow more PPIs to operate under the blanket of KYC norms, making it easier for the centralized entities like NCIIPC & RBI to monitor all the transactions. Further, it has been observed that rural areas and underdeveloped areas are facing issues of accessibility to banking facilities due to the lack of infrastructure, as per the Global Findex report of 2018 by World Bank6, 1 in 5 people in underdeveloped areas doesn’t have a bank account.
Further, it has been proposed that cash withdrawals for full-KYC PPIs of non-banking PPI
issuers will be enabled. The recommendation will enable such areas to have bank-like facilities
which they can use to facilitate cash withdrawals without having to undertake the development
of such infrastructure. The aforesaid provision will enable the underprivileged areas to have a
banking facility that will only require them to operate via wallets, irrespective of the fact whether
they have a smartphone or not7. The proposition is aimed at filling up the lacuna that exists
within the underprivileged area relating to cash withdrawals and e-payments. Security concerns
about the PoS terminal, like malware and RAM scraping8, will be resolved with the introduction
of wallet-to-wallet transfers.
Conclusion-
The aforesaid recommendations put forth by the RBI governor will broaden the horizon of
electronic payments in underprivileged areas where cash is still preferred over the electronic
mode of payment will be expanded and regulated. If this proposition is implemented, anyone
with a wallet can have access to banking facilities on the other hand companies facilitating PPIs.
If the recommendations see the light of the day through a legislative implementation then there
will no need for opening and maintaining a bank account, anyone sitting anywhere having basic
access to mobile networks will be able to have access to banking facilities.
The objective of increased financial inclusion can be achieved by the recommendations being
suggested by the RBI Governor.
- Master Direction on Issuance and Operation of Prepaid Payment Instruments,
2017, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11142 , accessed on 08/04/2021 - Prepaid Payment Instruments (PPIs) – Guidelines for Interoperability,
2018, https://www.rbi.org.in/Scripts/NotificationUser.aspx?ID=11393 , accessed on 08/04/2021 - Findex Report by World Bank
2018, https://openknowledge.worldbank.org/bitstream/handle/10986/29654/LDB-FinInclusion2018.pdf, accessed on 08/04/2021
see also India has a second-largest unbanked population in the world,
http://timesofindia.indiatimes.com/articleshow/64570254.cms?utm_source=contentofinterest&utm_medium=text&utm_campaig
n=cppst, accessed on 08/04/2021 - https://swarajyamag.com/technology/no-smartphone-you-can-still-transfer-money-using-a-basic-mobile-phone
- https://www.posusa.com/security-issues-risks-and-vulnerabilities-of-a-pos-system
