Money & Banking

Retail payment systems: IBA may seek clarity on whether banks can be part of both NPCI, NUE

Our Bureau Mumbai | Updated on March 04, 2021

NPCI is a ‘not for profit’ company, while NUE may be a ‘for profit’ company; the latter’s entry may see consumers pay more for digital banking services, say insiders

The Indian Banks’ Association (IBA) may seek regulatory clarity on whether banks already holding stake in the National Payments Corporation of India (NPCI) can be part of a consortia for setting up a New Umbrella Entity (NUE) for retail payment systems.

Though NPCI, India’s only umbrella organisation for operating retail payments and settlement systems, is a ‘not for profit’ company under Section 8 of Companies Act 2013 and NUE will in all probability, be a ‘for-profit’ company, banks want to be sure that the regulator has no objection to them holding stake in two organisations in the same line of business.

Also read: Umbrella entity for retail payments: Race for licence gathers momentum

One school of thought is against ‘for profit’ entities getting into the umbrella retail payment and settlement space due to concerns that the consumer may end up paying more than what he is currently paying for availing digital banking services.

However, another school of thought is of the view that digital banking services could improve further just like it happened after private players entered the telecom sector.

NPCI has 10 banks as shareholders with more than 5 per cent stake. Bank of Baroda is the single largest shareholder with 9.592 per cent stake (this includes the shareholding of erstwhile Dena Bank and Vijaya Bank).

State Bank of India, Union Bank of India, Bank of India, Punjab National Bank, Canara Bank, ICICI Bank, HDFC Bank, HSBC, and Citibank have 7.47 per cent stake each in NPCI.

These 10 banks collectively held 76.822 per cent stake in NPCI as at March-end 2020.

Proposals in the works

Significantly, several of these banks are working out proposals and plan to apply to the RBI for an NUE license.

State Bank of India is a key player that is planning to apply for a license. Sources said the idea is to take forward its mobile banking YONO app to the next level of payments. This could possibly be in a consortium with Bank of Baroda.

Meanwhile, HDFC Bank and Kotak Mahindra Bank are set to work in a consortium with Tata Sons and Mastercard to apply for a NUE license. ICICI Bank and Axis Bank are also working with Amazon and readying plans.

Also read: New umbrella entity for retail payments: RBI extends timeline to make application up to March 31

Another consortium led by Jio Platforms, a majority-owned subsidiary of Reliance Industries, is also in the race to set up a NUE.

According to industry watchers, at least half a dozen consortia are expected to apply and about three licenses may be given out.

“But applications are still in the process of being finalised. It is unlikely that any license will be issued until the end of the year or early 2022,” noted a person following the developments.

Many players believe that setting up more such entities will help further leverage digital payments and increase their penetration and it would not be fair to compare them with NPCI, which has spearheaded the payments transformation.

The deadline for filing applications with the RBI is March 31.

Published on March 04, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor