RBI proposes new umbrella entity for retail payment systems

RBI has proposed incorporation of a separate company in India under the Companies Act, 2013, which may be a ‘for-profit’ or a Section 8 company as may be decided by it and authorised by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (PSS Act).

The NUE shall be governed by the provisions of the PSS Act and other relevant statutes and directives, prudential regulations and other guidelines / instructions.

The NUE should have a minimum paid-up capital of Rs500 crore (to support / address the need of capital for managing risks, invest in technological infrastructure, for business operations, etc). No single promoter / promoter group should own more than 40 per cent investment in the capital of the NUE. The promoters shall upfront demonstrate capital contribution of not less than 10 per cent, ie, Rs50 crore at the time of making an application for setting up of the NUE. The promoter / promoter group shareholding shall be diluted to a minimum of 25 per cent after 5 years of the commencement of business of the NUE. A minimum net-worth of Rs300 crore shall be maintained at all times.

The scope of activities of the NUE, inter alia, include setting up, managing and operating new payment system(s) especially in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar-based payments and remittance services; develop new payment methods, standards and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.

The NEU should operate clearing and settlement systems; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system(s) and / or the economy in general.

It should fulfil its policy objectives and ensure that principles of fairness, equity and competitive neutrality in determining participation in the system; frame necessary rules and the related processes to ensure that the system is safe and sound, and that payments are exchanged efficiently.

The NEU should carry on any other business as suitable to further strengthen the retail payments ecosystem in the country.

The NUE shall conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its Board. The Reserve Bank retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.

The application for setting up the NUE shall contain a detailed business plan covering the payment system/s proposed to be set-up and / or operated along with other documents to duly establish its experience in the payments ecosystem.

Such plan should, inter alia, include technology, security features, market analysis / research, benefit if any of such payment systems, operational structure of the payment systems, time-period for setting up the payment systems and proposed scale of operations, etc. A proposed organisational strategy in terms of fulfilling its responsibility as an umbrella entity shall also be given in the business plan.

The entity eligible to apply as promoter / promoter group for the NUE shall be ‘owned and controlled by residents’ (as defined in FEMA Regulations, as amended from time to time) with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) /Payment Service Provider (PSP) or Technology Service Provider (TSP). 

The shareholding pattern shall be diversified. Any entity holding more than 25 percent of the paid-up capital of the NUE shall be deemed to be a promoter.

The memorandum of association (MOA) of the applicant entity must cover the proposed activities of operating a pan-India NUE for retail payment systems.

In case of any foreign direct investment (FDI) / foreign portfolio investment (FPI) / foreign institutional investment (FII) in the applicant entity, it should additionally fulfill the capital requirements as applicable under the extant Consolidated FDI policy guidelines of the government.

The application for authorisation must obtain necessary approval from the competent authority as required under the policy notified by the Department of Industrial Policy and Promotion (DIPP) under the consolidated policy on FDI and regulations framed under the Foreign Exchange Management Act (FEMA).

The entity / promoter / promoter group should satisfy the Reserve Bank’s ‘fit and proper’ criteria that says a director of the entity / promoter company / group company should be deemed to be a “fit and proper” person if such person has a record of fairness and integrity, including but not limited to – financial integrity; good reputation and character; and honesty.

Such person has not have incurred any of the following disqualifications: convicted by a court for any offence involving moral turpitude or any economic offence or any offence under the laws administered by the RBI; declared insolvent and not discharged; there should not be an order, restraining, prohibiting or debarring the person from accessing / dealing in any financial system, passed by any regulatory authority, and the period specified in the order has elapsed; found to be of unsound mind by a court of competent jurisdiction and the finding is in force; and is financially not sound.

The entity shall have a past record of sound credentials and integrity. In case of any dispute on fulfilment of fit and proper criteria, RBI’s decision shall be final.