Mumbai: The Reserve Bank of India’s attempt to bring private sector entities to participate in the operation and governance of country’s burgeoning retail payment system seem to be generating much interest among top corporates of India Inc.
Mukesh Ambani-owned conglomerate Reliance Industries, payment giants Paytm, capital market exchanges NSE and BSE are among top firms that are interested in securing licenses to own and operate an entity with powers at par with National Payments Corporation of India (NPCI), multiple sources aware of the development told ET.
These companies have appointed advisors to steer the project and held early stage discussions with representatives of RBI to explore the possibility of applying for a license under the regulator’s draft New Umbrella Entity (NUE) norms, people aware said.
They said the widespread interest stems from the fact that these companies feel they have the expertise and infrastructure to handle payment settlement at scale, and a license for NUE can help them have more autonomy and flexibility. Besides, it may also pave way for several collaborative products that could determine the future of India’s payment ecosystem.
“For example, a Reliance-owned entity in partnership with Facebook could introduce its digital currency project Libra 2.0 in a phased manner with due approvals,” said one of the sources cited above. “Those who get the approvals may well be at the forefront of the next big payment revolution in India.”
A detailed questionnaire sent to RBI, RIL and NSE didn’t elicit a response while spokespersons from Paytm and BSE declined to comment for this report.
As per one highly placed source, several other high-profile companies such as a technology giant, global financial technology companies and a consortium of Indian fintechs have also initiated an inquiry process to explore the possibility of applying for the said license when RBI opens the application window. However, ET could not independently verify these companies.
If given the green light, these companies can set up a pan-India payment network which can launch and govern its own payment systems in ways similar to how NPCI operates Unified Payment Interface (UPI) or National Automated Clearing House (NACH) once RBI releases final guidelines on eligibility and application. Currently, the process is in consultation stage with regulators having placed draft norms for the proposed project on their web site, is finalizing details.
The proposed entity would be regulated by RBI and authorised under Payment and Settlement Systems Act (PSSA) 2007, as per draft guidelines placed on RBI's website earlier this year. The company, unlike NPCI, which is owned by a consortium of top Indian banks, can be a “for-profit” entity as well.
“The regulators are planning to release the final guidelines, including details on eligibility and governance structure by the end of the year. The ongoing Covid-19 situation has delayed the process a little bit,” said another source with knowledge. “It is understood that RBI can hand out more than one license based on the number of applications and the strength of the proposals. The plan is to issue at least a couple of licenses by the end of this year.”
Prior to the release of draft guidelines, RBI on several occasions had considered introducing competition to NPCI in governing India’s burgeoning payments landscape as a measure to “de-risk” the ecosystem.
NPCI, which acts in the capacity of a nodal body in governing the retail payment ecosystem, controls over 60% of payment volumes and is directly responsible for functioning of highly important channels such as UPI, NACH, National Financial Switch (NFS) and IMPS.
“Over a decade, the National Payments Corporation of India (NPCI), has performed as the sole umbrella organisation for retail payment systems in India,” the central bank said in the December edition of its biannual Financial Stability Report. “Availability of NUE offering products which will lead to the redundancy of existing systems can, besides addressing concentration risk, also encourage competition and innovation, thus contributing to financial stability.”
As per RBI’s draft norms, the NUE needs to have a diversified shareholding with a minimum paid up capital of Rs 500 crore and the promoter not investing more than 40% of this capital. Furthermore, the eligible promoter would need to have at least three years’ experience as either a service provider, technology partner or operator in the payment’s ecosystem.
The banking regulator has said that it would be open to Foreign Direct Investment in the proposed entity, however, such applications would incur additional layer of scrutiny, including approvals from DIPP and FEMA.
“Scrutiny of applications will be undertaken by an External Advisory Committee (EAC). The EAC will submit its recommendations to the Reserve Bank,” as per RBI’s draft guidelines. “Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) will be the final authority on issuing authorisation for setting up NUE. Reserve Bank will endeavor to complete the process within a period of six months.”
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