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Revolutionary, breakthrough innovations are added to various spheres of life almost every month, including the sphere of financial activity in India. If you are planning to register an Indian fintech company, it is worth reading today's material, as it is devoted to unresolved issues of virtual banking in this country and in the world as a whole.

Regulation of virtual banking

In the US, UK, and Hong Kong, you can open a bank account and conduct a huge list of banking operations remotely, that is, without visiting a bank branch - for the older generation, who know all the bank's cashiers in person, it's just unthinkable! Virtual banking is booming in many countries, and India is no exception. The benefits of online banking are obvious, especially during the COVID-19 pandemic with all its security measures when face-to-face communication is kept to a minimum.

Features of a virtual bank:

  • has no physical office;
  • provides retail banking products and services online.

However, for those who intend to start financial activities in India or other Asian countries, it is important to understand that, contrary to popular belief, this is more than just an offer of Internet banking. What are the main characteristics of a virtual bank?

Modern classification of virtual banks:

  • online banks;
  • digital banks;
  • neo-banks;
  • challenger banks.

Most often, licenses to manage virtual banks are issued to organizations, despite the fact that they do not have parent companies in the field of banking and financial services. Examples are obtaining a financial license in Singapore, China and Hong Kong.

The current legal framework does not explicitly provide for the operation of virtual banks in India. Meanwhile, Indian financial regulators have taken some steps to change the situation:

  • Business correspondent

Business correspondents are retail agents who are hired by banks to provide banking services in India where it is impractical to open a branch of an Indian bank. This model aims to use innovation to perform operations with the latest gadgets that support information and communication technologies.

  • Licensing of payment banks in India

A few years ago, the Indian financial regulator issued a guide to licensing payment banks. Poultry banks are registered Indian financial companies that provide a limited range of banking services and are primarily aimed at low-income consumers, small businesses. Their financial services are often limited to payment/money transfer services.

  • Implementation of a platform for a normative sandbox

New technology-based models are tested in a controlled environment, enabling the regulator to oversee performance and assess potential risks. Particular attention is paid to the regulation of Fintech in India, as well as innovations in:

  1. areas of financial accessibility;
  2. making payments;
  3. lending procedures;
  4. the field of digital KYC.

Compliance with KYC is a priority in the banking sector, given the inherent risks of money laundering, crime financing, and fraud. This year, amendments have been made to allow customer identification through video as part of the KYC process.


It is important to understand that at a time when many countries have already introduced the possibility of registering a virtual bank, India is only at the beginning of this process. If you have questions on this topic, our company's legal professionals are ready to provide comprehensive answers. To sign up for an individual consultation on financial regulation in India, fill out a special form below. We do not deal with every legal aspect: if the issue is not within our competence, we say it clearly, and if we know other appropriate professionals for your needs, we can address you to them. Contact us and set up the first appointment remotely by phone or Skype.