New Umbrella Entity for Payment Systems

The Reserve Bank of India (RBI) is not in favour of having direct and supervisory control over the New Umbrella Entity (NUE) and instead wants agencies such as the National Payments Corporation of India (NPCI) or a newly formed body to take over the role.

New Umbrella Entities (NUEs)

  • In August 2020, RBI released a framework for the authorisation of an umbrella entity for retail payments in the country and had invited applications by March 31.
  • NUEs will be set up as a company as a for-profit under the Companies Act, 2013 and will get authorisation under the Payment and Settlement Systems Act, 2007 (PSS Act).
  • As per the RBI guidelines, the umbrella entity applicants should have a minimum paid-up capital of Rs 500 crore, while no single promoter or promoter group can have more than 40 per cent investment of capital. Further, the percent of stake has to be reduced to less than 25 percent within five years of operation.
  • The NUE should maintain a minimum net worth of Rs 300 crore at all times
  • Owned and Controlled by Residents: The promoter or the promoter group for the NUE should be ‘owned and controlled by residents’ with 3 years’ experience in the payments ecosystem.
  • Governance Structure: The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.
  • Foreign Investment: Allowed in NUEs as long as they comply with the existing guidelines.
New Umbrella Entity for Payment Systems

Functions Envisaged

  • The scope of activities for the NUE, as mandated by RBI includes payment systems in the retail space like ATMs, white-label point of sale terminals, Aadhaar-based payment systems, and remittance services, operation of clearing and settlement systems for participating banks and non-banks, be interoperable with NPCI, and participate in the Reserve Bank’s payment and settlement systems.
  • These will operate clearing and settlement systems, identify and manage relevant risks such as settlement, credit, liquidity and operation and preserve the integrity of the system.
  • These will 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 and the economy in general.

Need for NUEs

  • Limitations of NPCI:
    • Currently, the umbrella entity for providing retail payments system is NPCI, which is a non-profit entity, owned by banks.
    • NPCI operates settlement systems such as UPI, AEPS, RuPay, Fastag, etc.
    • Players in the payments space have indicated the various pitfalls of NPCI being the only entity managing all of retail payments systems in India.
  • To Increase Competitiveness:
    • RBI’s plan to allow other organisations to set up umbrella entities for payments systems aims to expand the competitive landscape in this area.
    • To remove monopoly of NPCI

Why RBI does not want direct and supervisory control over the New Umbrella Entities (NUE)?

  • High cost of setting up a new division at the RBI
  • Since the operations of NUEs will have financial aspects, the relevant permissions from RBI will still be needed. But the day-to-day supervision and control could be left to any other agency, according to latest media reports.
  • The Central Bank wants either the National Payments Corporation of India (NPCI) or a newly formed body to take over the role

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