The Reserve Bank of India’s draft directive on Digital Banking Channels Authorisation (2025) marks a much-needed reset in how digital banking is to be supervised and structured. For a sector that evolved organically over two decades—from ATMs and debit cards to internet banking, then mobile apps, voice assistants, and now platform integrations—the regulatory backdrop had become a patchwork of guidance notes and piecemeal circulars. This draft seeks to consolidate 16 separate circulars into a single unified framework.
That alone is a feat worth commending. Governor Shri Sanjay Malhotra, known for bringing pragmatism to policy and championing the cost-benefit principle in regulation, deserves credit for steering the RBI towards simplicity with discipline.
The Merits: Harmonisation, Protection, and Clarity
1. Consolidation of Disparate Circulars
For decades, banks operated under fragmented mandates. Debit card and ATM guidelines dated back to the early 2000s, followed by distinct rules for internet banking, and then mobile and digital apps. As digital delivery matured and newer players like Regional Rural Banks (RRBs), Urban Cooperative Banks (UCBs), and cooperatives came under RBI's purview, more circulars followed. This draft finally brings structure to chaos.
2. Harmonised Compliance for All Bank Types
No longer is digital delivery a privilege reserved for scheduled commercial banks. The draft ensures that RRBs, UCBs, and cooperative banks also operate under a common digital framework—an important step for inclusion.
3. Elevated Customer Protection Standards
The draft mandates explicit user consent before enabling digital channels, default opt-outs, fraud detection protocols, and even allows for "read-only" variants of digital banking. The latter may seem basic but is transformational for low-risk users such as the elderly, first-time users, or visually impaired customers.
4. Tiered Service Authorisation: View vs Transactional
By splitting digital services into "view-only" and "transactional", RBI introduces proportional risk management. View-only channels require notification, while transactional services need prior approval, net-worth thresholds, and cybersecurity readiness.
5. Repeal of Obsolete Rules
This draft cleans up 20 years of policy sediment. From outdated password protocols to legacy channel definitions, the overhaul is surgical.
The Risks: Innovation Headwinds
1. Unintended Consequences
The draft bans the display or promotion of third-party products on bank-owned digital channels. On paper, it protects consumers from mis-selling. In practice, it risks stalling:
- ONDC integrations where banks act as nodes in commerce
- Embedded finance within super apps or open platforms
- Voice banking with generative assistants recommending offers on third party apps
These innovations blur the line between interface and institution—and deserve a differentiated treatment, not blanket restriction. Banking has moved beyond the precincts of brick and mortar and hence has to be thoughtfully risk-controlled, not constricted.
2. Uniform Compliance, Unequal Burden
The draft's compliance framework applies uniformly, but digital scale isn’t uniform. Consider this:
| Bank | Mobile App | Net Banking | Tablet Banking | |
|---|---|---|---|---|
| SBI | Yes | Yes | Yes | Yes |
| HDFC Bank | Yes | Yes | Yes | Yes |
| ICICI Bank | Yes | Yes | Yes | Yes |
| Kotak Mahindra Bank | Yes | Yes | Yes | Yes |
| IndusInd Bank | Yes | Yes | Yes | Yes |
| IDFC First Bank | Yes | Yes | Yes | Yes |
| AU Small Finance Bank | Yes | Yes | ||
| Equitas SFB | Yes | Yes | ||
| Ujjivan SFB | Yes | Yes | ||
| Shivalik SFB | Yes | Yes |
Smaller institutions will struggle to scale these guidelines, even as their digital reach expands. The RBI could consider customer base as a better metric for regulatory scale than balance sheet size.
3. Digital Banking Units: A Tool Waiting to Be Unleashed
The 2022 launch of Digital Banking Units (DBUs) was a stroke of strategic brilliance. Piloted across 75 districts, DBUs were meant to be innovation outposts. But so far, they've remained tethered to their parent banks’ products, pricing models, and operational processes.
To truly empower legacy banks to reinvent themselves, DBUs must be allowed to operate as de-novo digital banks:
- Freed from legacy tech stacks
- Allowed differential product design
- Measured on digital KPIs, not footfalls or CASA
- Freed from parent bank’s product pricing constraints
RBI has the rare chance to create a global template here. DBUs can be our NU-Bank or Monzo—but only if we let them.
4. Bank’s Should Rethink Economics in a Digital World
The RBI’s renewed emphasis on cost–benefit analysis of digital channels is timely. While banks have historically run these assessments internally, the new framework offers an opportunity to reimagine the entire economics of digital banking.
DBUs were introduced with separate reporting mandates. But most banks failed to internalize them as true standalone entities. That’s a miss. Banks should treat digital banking not as a channel, but as a strategic business unit.
Yet most continue to evaluate digital banking with traditional metrics—deposits, footfalls, branch presence. This is outdated. The lens must shift to:
- Cost to serve per digital customer
- Revenue per digital interaction
- Conversion ratio of self-serve to cross-sell
Consider this:
- Citibank pioneered "sales per sq ft". It's time for banks to embrace "value per digital interaction". DMart does ~₹70,000 per sq ft of sales.
- Digital banking circles can serve 100x the customer base at a fraction of cost
Branch ROI must be replaced with channel-adjusted profitability metrics. This is especially important since in most banks about 30-90% of all retail business has shifted to Digital Channels.
Final Thoughts: The Hard Work Begins
The RBI has done the hard part: clean-up and consolidation. The next act must be bold by banks: unleash digital banking’s full potential through calibrated freedom, staying within the compliant zone.
