The Current State of Neobanks in India
Neobanks — digital-only banking platforms with no physical branches — have emerged as one of India’s boldest financial innovations. Instead of holding full banking licences, most operate in collaboration with regulated banks or NBFCs. These partners manage deposits and compliance, while the neobank focuses on user experience, digital onboarding, and seamless app-based services. This collaboration has allowed fintechs to move fast, but it has also raised questions about direct accountability and consumer protection.
Recent policy discussions referencing Digital Banking Licence Frameworks have reopened the debate on whether India should create a dedicated licence for digital banks. The Reserve Bank of India (RBI) currently treats neobanks as intermediaries rather than independent entities — yet their reach across Tier 2 and Tier 3 cities shows growing consumer confidence in branchless finance.
Insight: India’s neobanks are scaling faster than the rulebook — a sign that regulation may soon evolve to match innovation.Today, customers use neobanks for payroll, SME accounts, and instant savings products, even though all funds technically flow through partner banks. This indirect model has allowed flexibility but also fragmented oversight. It’s becoming increasingly clear that the next chapter of neobanking in India will hinge on how — and when — the RBI redefines “licence ownership.”
Regulatory Signals and the RBI’s Position
For now, the RBI hasn’t granted full banking status to any neobank. But subtle signals indicate that conversations are shifting. The two-tier proposal from NITI Aayog, which suggests moving qualified fintechs into a phased licensing track, has gained momentum among policymakers and founders alike. Industry leaders tracking Neo Bank Business Models India note that several platforms are already building governance frameworks that mirror regulated banks — hoping to be ready when the gate opens.
At the same time, the regulator’s caution is deliberate. It continues to issue Prepaid Payment Instrument (PPI) licences and payment aggregator approvals — interim solutions that allow neobanks to expand wallets and cards, without deposit-taking rights. Revolut, Jupiter, and RazorpayX are examples of players using this middle ground to test compliance systems and risk engines.
While RBI officials have repeatedly emphasised inclusion and innovation, they have also warned against concentration risk and cybersecurity vulnerabilities. As fintech penetration deepens, regulators appear more interested in building layered entry norms than rushing into blanket licensing.
What a Full Banking Licence Would Mean for Neobanks
If the RBI eventually opens a direct licensing channel, the impact will be transformative. Gaining control over deposits, credit, and payments settlement could redefine India’s fintech ecosystem. But that privilege will come with the responsibility of higher capital buffers and deeper compliance systems. Analysts studying Fintech Regulatory Oversight India expect the first wave of licensees to resemble “digital-first banks” — fintechs with robust risk frameworks and diversified product stacks.
Benefits of licensing:
- Operational independence: Neobanks could offer end-to-end services, eliminating dependence on partner institutions.
- Regulatory clarity: Clearer accountability would boost investor confidence and long-term valuation.
- Global credibility: A regulated status would position Indian neobanks to collaborate with counterparts in Southeast Asia and the Middle East.
Challenges to overcome:
- Capital adequacy: Meeting RBI’s thresholds would require strong investor backing and disciplined balance sheets.
- Cyber resilience: As pure-play digital entities, neobanks must maintain top-tier encryption and monitoring systems.
- Governance depth: Boards must include independent directors, risk officers, and compliance heads — much like traditional banks.
Challenges and Path-Ahead for Neobanks and Regulators
For both fintechs and the RBI, the coming phase is about alignment. Regulators must design rules that protect consumers without stifling innovation; neobanks must evolve from agile apps into trusted financial institutions. Much of this will depend on how India implements new data and privacy standards outlined in Data Privacy And Banking Licences.
These standards will require neobanks to maintain auditable consent trails, encrypted customer data, and onshore storage of financial information — all while managing real-time operations. Industry experts expect the RBI to begin with limited digital-bank pilots, allowing a few high-compliance fintechs to test full-stack operations before scaling the model nationwide.
Until then, hybrid frameworks — where fintechs co-brand with traditional banks — will continue to dominate. But make no mistake: the era of “unlicensed neobanking” is nearing its end. The next generation of digital banks will need to be as secure as they are sleek.
The story of India’s neobanks isn’t about replacing banks — it’s about reimagining them for a digital generation that demands speed, safety, and simplicity.
Frequently Asked Questions
1. Are neobanks in India currently licensed by the RBI?
No. Most neobanks in India operate via partner banks and do not hold independent banking licences.
2. Has the RBI announced plans to issue digital-banking licences to neobanks?
As of now, the RBI has not formally announced a new licence category for standalone neobanks. A two-stage digital bank model was discussed but not yet finalised.
3. What is the significance of the PPI licence that some neobanks have obtained?
A PPI (Prepaid Payment Instrument) licence allows issuance of digital wallets or prepaid cards, but it does not confer full banking privileges like deposit taking or lending.
4. What would neobanks need to do to qualify for a full banking licence?
They would need to meet capital norms, risk management and governance standards, secure licensing, customer-fund protection norms and regulatory infrastructure.
5. How should fintechs prepare for a potential change in the licence regime?
Focus on strengthening compliance, partnerships, core banking tech, sound business models and board governance so you can transition smoothly when regulatory pathways open.