Reserve Bank of India
The Reserve Bank of India (RBI), in its annual report for FY23, has said that India has emerged stronger and more resilient from the pandemic, partly due to digital transformation. The report states that there was an increase in digital transactions in 2022-23, compared to the previous year. The report states, “In 2022-23, total digital payments recorded growth of 57.8 per cent and 19.2 per cent in volume and value terms.”
Furthermore, the RBI said that India outpaced other nations and emerged as the largest player in real-time transactions globally, with a 46 per cent share in 2022. The report also said that the strong penetration and growth in United Payments Interface (UPI) were “buoyed by rapid merchant onboarding, growing digital awareness and policy thrust on continuous enhancements in the scope and reach of payment systems.”
Lightweight Payment and Settlement System (LPSS)
The RBI has conceptualised a lightweight and portable payment system which will be “independent of conventional technologies and can be operated from anywhere by a bare minimum staff.”
The RBI noted that the existing conventional payment systems, such as NEFT, RTGS and UPI, are designed to handle large volume of transactions while ensuring sustained availability, however, they are also dependent on complex wired networks backed by an advanced IT architecture and infrastructure. The report further states that these conventional systems could be rendered temporarily unavailable during catastrophic events such as natural calamities and war as the underlying information and communication infrastructure may be disrupted.
Therefore, the RBI has conceptualised a light weight and portable payment system noting that it is prudent to be prepared to face such extreme and volatile situations. Furthermore, such system will operate on minimalistic hardware and software, and will process transactions critical to ensure stability of the economy, such as government and market related transactions. This system would be active only on a need basis.
“Such a light weight and portable payment system could ensure near zero downtime of payment and settlement system in the country and keep the liquidity pipeline of the economy alive and intact by facilitating uninterrupted functioning of essential payment services like bulk payments, interbank payments and provision of cash to participant institutions,” said the report.
“Having such a resilient system is also likely to act as a bunker equivalent in payment systems and thereby enhance public confidence in digital payments and financial market infrastructure even during extreme conditions,” the report added.
Artificial Intelligence for Handling Complaints
It is pertinent to note that the RBI is also focusing on providing expedient complaint resolution mechanisms for customers to protect their interests. As per the RBI’s report, the banking regulator is in process of embedding artificial intelligence (AI), machine learning (ML) and other emerging technologies in its 24×7 online complaint management system (CMS) “to facilitate lodging of complaints with ease, provide complainants with necessary information on grievance redressal and expedite complaint processing by aiding decision making for the ombudsman.”
UPI for Remittances and International Transactions
The report stated that the UPI was also extended to Non-Resident Indians (NRIs) and foreign nations for undertaking merchant payments in India. The report further said that the linking of UPI with Singapore’s PayNow eases the facilitation of “low-cost fund transfer and remittances between two countries.”
“The Reserve Bank envisages enhancing the outreach of payment systems to cross-border payments and remittances,” said the report. The report further revealed that the RBI has linkages with fast payment systems with other jurisdictions, on the lines of UPI-Singapore’s PayNow, which is in the pipeline.
National Strategy for Financial Inclusion
The RBI further revealed that in order to expand and deepen the digital payments ecosystem in India, the “state level bankers’ committees/union territory level bankers’ committees (SLBCs/UTLBCs) have been identifying the districts in their respective states/UTs for making them 100 per cent digitally enabled.” The report further reveals that 182 districts have been identified across India, as at end-March 2023.
The report reveals that National Strategy for Financial Inclusion (NSFI) has been put in place to deepen financial inclusion. The NSFI lays down action plans and milestones, and suggests broad recommendations, which, inter alia, focus on “creating the necessary infrastructure to support the digital eco-system, strengthening inter-regulatory co-ordination for customer grievance redressal by leveraging technology, and creating innovative approaches.”
“Initiatives undertaken to broaden and deepen financial inclusion in the country by the government as well as the Reserve Bank have been helping in promoting inclusive economic development,” said the report.
The RBI’s Financial Inclusion Index (FI-Index), improved from 53.9 in March 2021 to 56.4 in March 2022 (latest available), with growth witnessed across all sub-indices. The FI-Index is a quantifiable metric to evaluate the efficacy of efforts towards financial inclusion, based on 97 indicators, including reflecting ease of access, availability and usage of services, and quality of services.
Payments Vision 2025
The report stated that the RBI released the ‘Payment Vision 2025’ last fiscal “with the theme E-Payments for Everyone, Everywhere, Everytime promising to further elevate India’s payment systems to empower every user with safe, secure, reliable, accessible, affordable and efficient payment options.” The RBI’s ‘Payment Vision 2025’ aims to provide consumers with affordable payment options which can be accessed anytime and from anywhere with convenience. Furthermore, the report states that various enhancement were brought in payment systems to “enrich functionalities and onboard consumers on the digital journey.”
The report said that as the RBI embarks on the journey of realising the ‘Payments Vision 2025,’ the steps taken so far should be “further consolidated and built upon through the five pillars of integrity, inclusion, innovation, institutionalisation and internationalisation.” The RBI said that these measures are expected to propel India’s payments systems further.
The UPI Lite was introduced last fiscal to facilitate small-value transactions in office mode through an on-device wallet using UPI. The RBI said that RuPay credit cards were permitted to link to UPI to further deepen the broadening of financial products.
The RBI stated that its key priorities moving forward would be “inclusion and internationalisation.” The report further said, “The scope of UPI shall be enhanced to facilitate payments from pre-sanctioned credit lines at banks. The cheque truncation system (CTS) is planned to be migrated from the existing three regional grids to ‘One Nation One Grid’.”
The report said that “several shocks tested the resilience of the Indian economy in 2022-23. On the back of sound macroeconomic policies, softer commodity prices, a robust financial sector, a healthy corporate sector, continued fiscal policy thrust on quality of government expenditure, and new growth opportunities stemming from global realignment of supply chains, India’s growth momentum is likely to be sustained in 2023-24 in an atmosphere of easing inflationary pressures.”
“Slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility following new stress events in the global financial system, however, could pose downside risks to growth. It is important, therefore, to sustain structural reforms to improve India’s medium-term growth potential,” added the report.
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