Banking Article, Banking Finance 2022, Banking Finance December 2022

Regulator’s Digital Initiatives and Regulations

As we all know that digital disruption in Banking and Financial Services is creating plethora of opportunities for service provider to come up with innovative digital products and serve their customers well but at the same time it is a challenging assignment for the Regulators to keep pace with the fast-changing ecosystem for providing safe, secure and cost-effective financial services by creating state-of-the-art payment and settlement systems in the country.

Giving a big push to digital transactions in areas with poor internet connectivity, the Reserve Bank of India (RBI) has recently allowed offline mode of payments using any channel or instrument like cards, wallets or mobile devices.

According to the RBI, transactions are subject to a limit of Rs 200 per transaction and an overall limit of Rs 2,000 for all transactions until balance in the account is replenished. An offline digital payment means a transaction which does not require internet or telecom connectivity. Under this new framework, such payments can be carried out face-to-face (proximity mode) using any channel or instrument like cards, wallets and mobile devices. Such transactions would not require an Additional Factor of Authentication (AFA).

The Reserve Bank of India (RBI) has created a new department to identify challenges and opportunities in financial technology, particularly around cryptocurrency. The department could be active on the cryptocurrency front, in terms of framing regulations. Apart from cryptocurrency, experts believe the creation of the RBI’s central bank digital currency will also fall under its purview.

Likewise, various initiatives were undertaken by RBI to facilitate digital penetration by enhancing acceptance infrastructure across the country and introducing innovative payment options to deepen the reach of payment systems.

For improving customer’s convenience, some of the important steps taken by RBI are mentioned below:

  1. Video KYC:

Video based Customer Identification Process (V-CIP) is an alternate method of customer identification with facial recognition and customer due diligence by an authorised official by undertaking seamless, secure, live, informed-consent based audio-visual interaction with the customer to obtain identification information required for CDD purpose, and to ascertain the veracity of the information furnished by the customer through independent verification and maintaining audit trail of the process. Such processes complying with prescribed standards and procedures shall be treated on par with face-to-face CIP.

  1. Door Step Banking:

Banks have been asked by the RBI to offer the doorstep banking services on pan India basis and have a framework for determining the nature of branches where these services will be provided mandatorily and those where it will be provided on a best effort basis and make the policy public.

The list of branches offering such doorstep banking services has to be displayed and updated on the bank’s website regularly. Banks will also have to transparently show the charges, in this regard, which needs to be prominently published on their websites.

  1. Online Dispute Resolution (ODR)

The ODR system was conceptualised as a rule-based technology-driven customer-friendly mechanism for resolving customer grievances and disputes with zero or minimal manual intervention. This will provide a quick, affordable and accessible dispute resolution system for customers. With the possibility of customer grievances increasing in line with the manifold increase in digital transactions, the ODR system will eliminate the requirement of additional manpower to handle disputes / grievances.

  1. Self-Regulatory Organisation (SRO)

SRO shall set and enforce rules and standards relating to the conduct of member entities in the industry, with the aim of protecting the customer and promoting ethical and professional standards, including addressing larger concerns, such as protecting customers, furthering training and education and striving for development of members, the industry and the ecosystem as a whole.

  1. Pan-India Cheque Truncation System (CTS)

To leverage the availability of CTS and provide uniform customer experience irrespective of location of bank branch, banks were advised to ensure that all their branches participate in image-based CTS by September 30, 2021.

  1. 24×7 Availability of RTGS System

The Reserve Bank made available the RTGS system 24×7 on all days of the year from 00:30 hours on December 14, 2020. India has become one of the few countries across the world where RTGS system operates round the clock throughout the year. Round the clock availability of RTGS has provided extended flexibility to businesses for effecting payments and enabled introduction of additional settlement cycles in ancillary payment systems.

  1. Digital Payment Transactions – Streamlining QR Code Infrastructure

The Reserve Bank mandated that existing proprietary QR codes shall migrate to interoperable QR codes by March 31, 2022 and there shall not be further issuance of proprietary QR codes. These measures are expected to strengthen the acceptance infrastructure and enhance customer convenience due to interoperability and augment system efficiency.

  1. Card Transactions in Contactless Mode – Relaxation in Requirement of Additional Factor of Authentication (AFA)

The Reserve Bank enhanced the per transaction limit permitted for contactless transactions (also known as tap and pay transactions) using Near Field Communication enabled EMV chip cards without the need for AFA from ₹2,000 to ₹5,000.

B. For Ensuring Affordable Costs,important initiatives taken by RBI are as under:

  1. Retail Direct Scheme:

Reserve Bank of India (RBI) has notified its retail direct scheme, under which retail participation will be encouraged in government securities by providing prices and quotes to retail direct gilt (RDG) account holders, which will help them in trading in securities.As per the scheme retail investors have the facility to open an online RDG account with RBI.

  1. Legal Entity Identifier (LEI)

LEI number facilitates unique identification of the parties involved in financial transactions worldwide, thereby, improving quality and accuracy of financial data systems and ensuring better risk management post the global financial crisis. The Reserve Bank has  introduce the LEI number for all payment transactions of value ₹50 crore and above, undertaken by entities (non-individuals) using centralised payment systems, viz., RTGS and NEFT.

  1. Operationalisation of PIDF

The Reserve Bank operationalised PIDF in January 2021 to encourage acquirers to deploy payment acceptance infrastructure in tier-3 to tier-6 centres and north eastern states.The scheme envisages creation of 30 lakh new touch points every year for digital payments across the country during 2021-23.


C. For Increasing Customer Confidence RBI has taken following steps:

  1. Digital Payments Index (DPI)

The Reserve Bank constructed and published a composite DPI to effectively capture the extent of digitisation of payments across the country.The RBI-DPI index has demonstrated significant growth in the index representing the rapid adoption and deepening of digital payments across the country in recent years.

  1. Positive Pay System for CTS

In order to augment customer safety in cheque payments and reduce instances of fraud occurring on account of tampering of cheque leaves, the Reserve Bank announced a concept of Positive Pay Mechanism for all cheques of value ₹50,000 and above. Under this mechanism, cheques are processed for payment by the drawee bank based on information passed on by its customer at the time of issuance of cheque.

  1. Guidelines on Regulation of Payment Aggregators (PAs) and Payment Gateways (PGs)

In terms of extant instructions issued by the Reserve Bank on regulation of PAs and PGs, PAs cannot store customer card credentials within their database or the server [i.e. Card-on-File (COF)]. Similarly, their on-boarded merchants cannot store the payment data of their customers.

  1. Geo-tagging of Payment System Touch Points

 The Reserve Bank has established a framework to capture the location and business details of commercial bank branches, ATMs and business correspondents (BCs). It is envisaged to extend a similar framework to capture and maintain information about PoS terminals and other payment system touch points as well.

D. Other Developments:

  1. UPI/RuPay International Outreach Initiatives

The Reserve Bank participated in regional outreach programmes organised by the Bank for International Settlements (BIS), where the possibility of leveraging UPI system to facilitate cross-border transactions was presented to participants.

  1. Developments in CCIL

CCIL improved risk management by fixing lower limits based on internal rating and stepping up haircut rates for weaker entities; and also extended the FX-Retail platform by introducing booking and cancelling facility for forward contracts for bank customers besides operationalising ‘Request for Quote’ (RFQ) module on negotiated dealing system (order matching).

  1. e-Baat Programmes and Awareness Campaigns

The Reserve Bank has been conducting electronic banking awareness and training (e-BAAT) programmes regularly for the benefit of cross-section of customers/bankers/students/ public.

  1. RegTech Solutions for Effective and Focused Regulations

The Reserve Bank has joined the Global Financial Innovation Network (GFIN), a network of over 50 organisations committed to support financial innovation.

  1. Sarthi – Electronic Document Management System (EDMS)

The Reserve Bank introduced its Electronic Document Management System, named as Sarthi, to facilitate and automate the various facets of document processing and management in a safe and secure manner.

  1. Implementation of Next-Generation e-Kuber:

e-Kuber system is being refreshed to improve the functionalities by leveraging on technological developments and will facilitate enhanced automation of processes, flexibility of integration with external and internal systems, ease of change management, enhanced modularity, reporting with comprehensive real time dashboards, front end improvements for enhancing productivity and robust controls.


In sum, the Reserve Bank continued its efforts to develop state-of-the-art payment and settlement systems in the country and enhance the digital payment experience of the consumers, while ensuring adequate security measures. These initiatives have facilitated smooth transition towards a less cash society with improved transaction efficiency and a delightful digital experience.

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