RBI issues draft framework for setting up competitor to NPCI

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Published: February 12, 2020 12:30:24 AM

The NUE will be a company authorised by the central bank under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007.

The consensus within the RBI is understood to be that the NPCI now has little to offer. The consensus within the RBI is understood to be that the NPCI now has little to offer.

The Reserve Bank of India (RBI) issued a draft framework late Monday evening for authorisation of a pan-India new umbrella entity (NUE) for retail payment systems. At present, only the National Payments Corporation of India (NPCI), a not-for-profit company, performs this role. The NUE could choose to be a for-profit entity or a not-for-profit as defined under Section 8 of the Companies Act.

The NUE will be a company authorised by the central bank under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007.

“It shall be governed by the provisions of the PSS Act and other relevant statutes and directives, prudential regulations and other guidelines/instructions,” the central bank stated in a release.

The entity eligible to apply as promoter or promoter group for the NUE shall be ‘owned and controlled by residents’ with three years’ experience in the payments ecosystem as Payment System Operator (PSO)/Payment Service Provider (PSP)/Technology Service Provider (TSP). The shareholding pattern shall be diversified. Any entity holding more than 25% of the paid-up capital of the NUE shall be deemed to be a promoter.

The NUE shall have a minimum paid-up capital of `500 crore to support the need of capital for activities that will include managing risks and investing in technological infrastructure as well as for business operations. No single promoter or promoter group shall have more than 40% investment in the capital of the NUE.

The promoters shall upfront demonstrate capital contribution of not less than 10%, or Rs 50 crore, at the time of making an application for setting up of the NUE. The promoter shareholding shall be diluted to a minimum of 25% after five years of commencement of business. A minimum net-worth of Rs 300 crore shall be maintained at all times.

The NUE will be responsible for setting up, managing and operating new payment systems, especially in the retail space. They will also be authorised to develop new payment methods, standards and technologies, monitor related issues in the country and internationally and take care of developmental objectives, such as enhancement of awareness about the payment systems.

Further, the NUE will operate clearing and settlement systems, identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the systems as well as monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the systems or the economy in general.

The call for new entities to set up an NUE is in line with a January 2019 policy paper by the RBI, which had made a case for greater competition in the retail payments ecosystem.

“Payment Systems in India have grown in a manner which is characterised by a few operators while there is a wide array of payment systems. This has given rise to certain questions which range largely around concerns of concentration, need for competition and the resultant impact on economic efficiency and financial stability,” the paper stated, adding that the concentration of operational risk within a single entity made it ‘too big to fail’.

The consensus within the RBI is understood to be that the NPCI now has little to offer. “The central bank believes that NPCI has become too complacent and has gotten stuck with UPI (Unified Payments Interface). That is why it is seeking to introduce competition in the system,” a person close to the developments said.

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