In the Union Budget 2022-23, the finance minister had announced the setting up of 75 Digital Banking Units (DBUs) by Scheduled Banks across 75 selected districts in India.
Models of Digital banks
- (Front-End Only) Neo-banks: These neo-banks partner with existing Banks to offer Banking services such as Deposits and loans. These neo-Banks do not have funds of their own, but they collaborate with the traditional banks to offer various banking related services. Examples: RazorPayX, InstantPay, Open, Niyo etc.
- (Licensed) Digital banks: These entities are fully functional banks, regulated by the banking regulator and issue deposits and make loans on their own balance sheet. Presently, RBI does not allow such fully digital Banks to operate in India. Earlier, the NITI Aayog had argued in favour of such Banks in India.
- (Autonomous) unit of traditional banks: These entities are essentially neo-banking operations of traditional banks that function autonomously and compete with stand-alone neo-banks. Examples include SBI's Yono, 811 of Kotak Mahindra, DigiBank of DBS etc.
Present status in India
- Presently, only those entities which are licensed by the RBI can undertake Banking related operations. As of now, the RBI does not allow Banks to be 100% digital. Hence, even though Banks can provide Banking services by leveraging technology (such as iMobile of ICICI), the Banks must have mandatory physical branches. Hence, there is no provision for Licensed 100% Digital Banks in India.
Proposal of 100% digital banks by NITI Aayog
- To be licensed under Banking Regulation Act, 1949 as 100% Digital Banks.
- Provide Banking Services- Acceptance of Deposits, Giving Loans, provide insurance etc. without the need to have physical branches.
- No Physical Branches (No Brick and Mortar)
- Leverage Technology to provide Banking Services
- Also called as Challenger Banks- Newly created Banks which compete with longer established Banks through use of Digital Technology. Global Examples: Challenger Banks such as Starling Bank, Monese Banks in UK.
Union budget 2022-23
- Proposal to set up Digital Banking Units (DBUs). However, these Digital Banking Units would not be set up by issuing licenses to 100% Digital Banks. Only the existing Banks in India which already have physical presence are allowed to open DBUs.
RBI's guidelines on Digital banking units (DBUS)
- Definition of Digital Banking Unit: A specialised fixed point business unit having certain minimum digital infrastructure for delivering digital banking products & services. So, just like how Banks can have physical branches, the Banks can also open DBUs with minimal human interface.
- Who can open DBUs?: All Domestic Scheduled Commercial Banks (excluding Regional Rural Banks, Payments Banks and Local Area Banks).
- Products and Services offered by DBUs:
- Account Opening
- End-to-end digital processing of loans
- Internet Banking Kiosk
- Cash withdrawal and Cash Deposit only through ATM
- Digital Kit for customers: Mobile Banking, Internet Banking, Debit Card, Credit card and mass transit system cards
- Digital enrolment of customers for Atal Pension Yojana, PM Jeevan Jyoti Yojana etc.
- Where can DBUs be opened? Both Rural and Urban areas without the need to get a separate license from RBI.