Pakistan’s central bank approves five digital retail banks

KARACHI: The State Bank of Pakistan (SBP) said on Wednesday it had granted in-principal approval (IPA) for establishing five digital retails banks (DRBs) in a bid to “foster innovation, financial inclusion and availability of affordable digital financial services.”
SBP issued no-objection certificates to five successful applicants for establishing digital banks in Pakistan in January 2023. After the fulfillment of necessary requirements, the entities have now been granted in-principal approval to prepare themselves operationally to launch digital financial services.
The five digital retail banks are HugoBank Limited, KT Bank Pakistan Limited, Mashreq Bank Pakistan Limited, Raqqami Islamic Digital Bank Limited and Telenor Microfinance Bank Limited.
A digital bank operates online and provides its customers the services that were previously available only at a bank branch. DRBs usually cater to the retail segment like individual customers and small and medium businesses.
“Governor SBP highlighted the significance of the initiative of introducing DRBs in the country, its profound benefits to the financial system and some of the key challenges faced by such a genre of financial players,” the SBP said, quoting Jameel Ahmed, who also spoke about other important regulatory initiatives in support of building a digital financial ecosystem and assured that the SBP was fully committed to supporting various stakeholders for a “bright, innovative, and digitally empowered future of banking in Pakistan.”
“Jameel Ahmed also shared his expectations that post operational commencement, digital banks will help developing a digital eco-system, foster a new set of customer experience, provide affordable digital financial services including credit access to unserved and underserved segments of the society,” the central bank said.
The in-principal approvals will enable the proposed DRBs to proceed further with achieving operational readiness in all functions, including governance, risk management, capital requirements, compliance and audit, consumer protection, business continuity, cybersecurity, product development, deployment of technological infrastructure, formulation of relevant policies, processes and procedures.
Earlier this year, SBP issued no-objection certificates to the proposed DRBs, allowing them to incorporate as a Public Limited Company with the Securities and Exchange Commission of Pakistan (SECP). The five institutions were selected after a thorough and rigorous evaluation process based on a comprehensive set of parameters including fitness and propriety, experience and financial strength; business plan; implementation plan; funding and capital plan; IT and cybersecurity strategy and outsourcing arrangements. 
Upon attaining operational readiness, the five institutions would finally be required to seek approval of the SBP for the commencement of operations.