SBP plans to issue five digital banking licences

KARACHI: The State Bank of Pakistan (SBP) plans to issue up to five licenses for setting up digital banks in the country offering digital retail and digital full banking on a lower capital requirement, the central bank said on Monday.

“In line with international best practices and assessment of the overall banking situation in Pakistan, SBP has decided to initially issue up to five (5) digital banks’ licences, which essentially means that SBP is looking to attract players with a strong value proposition, a robust technological infrastructure, sufficient financial strength, technical expertise, and effective risk management culture,” it said in a statement.

The applicant could apply for licenses to set up digital banks till March 31, 2022. The SBP would grant two types of digital bank licences: Digital Retail Bank (DRB); and, Digital Full Bank (DFB).

DRBs would primarily focus on retail customers, while DFBs would deal with retail customers as well as business and corporate entities. For DRBs, the minimum capital requirement has been set at Rs1.5 billion during the pilot phase that would gradually increase to Rs4 billion over a transition period of three years, it said.

Subsequent to completion of transition phase, and subject to fulfilment of minimum capital requirement and completion of a two years progression phase, DRBs would be allowed to graduate to receive a license of a DFB, it added.

The SBP expects a few digital banks to be operational in the course of 2022, and was confident that these banks would play an important role in an inclusive and efficient expansion of the financial ecosystem in Pakistan.

The SBP issued licencing and regulatory framework, which provides details for setting up digital banks as a separate and distinct category in Pakistan. It has developed and finalised this framework after an extensive consultative process.

A digital bank is defined as a bank that offers all kinds of financial products and services primarily through digital platforms or electronic channels instead of physical branches. The framework mainly aims to enhance financial inclusion through affordable and cost-effective digital financial services and is part of SBP’s comprehensive efforts to promote digital financial services in Pakistan. The framework includes guidance regarding licensing requirements, potential sponsors, and permissible use-cases during different phases. It also sets an expectation from applicants to have sound digital governance, robust, secure, and resilient technology infrastructure, effective data management strategy and practices.

As per the framework, digital banks are required to maintain a principal place of business in Pakistan to house the offices of their management, staff, other support operations and serve as the main hub/point of contact for various stakeholders including SBP and other regulators.

The demand for banking services is also faith-sensitive and there is a large market for Shariah-compliant services. Over the years, the Islamic banking industry has established a strong footing and gained a sizable share of the banking industry.

Therefore, licences for DRBs and DFBs could be obtained for both conventional and Islamic variants. Further, conventional variants of DRBs and DFBs could also offer Islamic banking services through Islamic windows as per existing practice.