New Delhi, Sep 17 (PTI) Former finance secretary Subhash Chandra Garg on Friday said the new age neo banking should be regulated, and there is scope for allowing full service digital banks in the future.

Pointing the difference between the fintechs and fully digital branch-less new banks, he said while the former is related to payments and regulated, the latter is about credit and is not regulated.

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He said even though many countries have allowed fully digital, branchless new banks, India's regulations are still averse to that.

India has extremely fragmented banking on the credit side which requires a lot of regulations.

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"I think we need to think that in the digital space these kinds of constraints will make digital banking somewhat less exciting," he added.

"We don't have any law to sort of define, or lay any basic principle or law relating to credit management. We have that only on the payment side. We have Payment Settlement Act which regulates payments," he said while speaking at an Assocham webinar on neo banking.

Thus, it is easier for the Reserve Bank to license the fintech companies, he added.

"But suppose tomorrow the Reserve Bank were to say let us license neo banks, without giving them banking license...then under which law the Reserve Bank licenses them or regulates them, there is nothing," he said further.

Garg suggested: "We should come up with some kind of legislation to define and regulate credit...have a regulator for them".

The former official in the Finance Ministry also said that at some stage India should allow full service digital banks.

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