RBI releases framework for umbrella entity for retail payments

The Reserve Bank of India (RBI) on August 18 released a framework to set up a pan-India umbrella entity focussing on retail payment systems. Such an entity will be a company incorporated in India under the Companies Act, 2013 and may be a ‘for-profit’ or a Section 8 company as may be decided by it, RBI said.

The umbrella entity will be a company authorised by RBI under Section 4 of The Payment and Settlement Systems Act, 2007. It will be governed by provisions of the PSS Act and other relevant statutes and directives, prudential regulations and other guidelines/instructions, it stated.

All entities eligible to apply as promoter and promoter group of the umbrella entity will be owned and controlled by resident Indians. Further, the shareholding pattern will be diversified and the candidates needs to have three-year’s experience as payment system operator/payment service provider/technology service provider (TSP).

Any entity holding more than 25 percent of the paid-up capital of the umbrella entity will be deemed to be a promoter, RBI said. According to the central bank, the umbrella entity needs to have a minimum paid-up capital of Rs 500 crore. Also, no single promoter or promoter group should have more than 40 percent investment in the capital of the umbrella entity.

“The promoters/promoter groups will have to demonstrate capital contribution of not less than 10 percent i.e., Rs 50 crore at the time of making an application for setting up of the umbrella entity. The balance capital will be secured at the time of commencement of business/operations,” RBI said.

The promoter or promoter group shareholding can be diluted to a minimum of 25 percent after five years of the commencement of business of the umbrella entity. A minimum net worth of Rs 300 crore will be maintained at all times, the central bank said.

Scope of activities
The RBI framework has listed the scope of activities for the umbrella company.

These include setting up, managing and operating new payment system in the retail space comprising ATMs, white label point of sale (PoS); Aadhaar-based payments and remittance services; operating clearing and settlement systems for participating banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational; and preserve the integrity of the systems, monitor retail payment system developments and related issues.

Further, the umbrella entity is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI, RBI said.

Strict rulesRBI has stipulated strict rules on governance structure, business plan and fit and proper criteria of promoters and foreign investments to permit the operations of an umbrella entity.

As per this, the umbrella entity will conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board. Also, the central bank will have the right to approve the appointment of directors as also to nominate a member on the board of the umbrella entity.

The entity needs to have a detailed business plan covering the payment systems proposed to be set up along with other documents to establish its experience in the payments ecosystem, it said.

The RBI has given time till February 26, 2021 for aspirants to apply for an umbrella entity.