RBI tables draft framework for pan-India New Umbrella Entity for retail payment systems

The RBI has placed on its website a ‘draft framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems’ for public comments. Under the framework, promoter/promoter groups that want to set up an NUE can set it up as a company incorporated in India under the Companies Act, 2013. The NUE should have a minimum paid-up capital of Rs 500 crore.

The scope of an NUE’s activities will include the setting-up, managing and operating of new payment systems, especially in the retail space comprising, but not limited to, ATMs, white label point of sale (PoS), Aadhaar-based payments and remittance services, and the development of new payment methods, standards and technologies.

Prescribed activities

The NUE's activities will also include monitoring payments-related issues in the country and internationally; and taking care of developmental objectives such as enhancement of awareness about the payment systems, said the RBI note.

The NUE will operate clearing and settlement systems; 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 in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the systems and/or the economy in general.

The RBI framework further says the NUE has to ensure that the principles of fairness, equity and competitive neutrality are applied 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.

Capital requirements

The NUE should have a minimum paid-up capital of Rs 500 crore (to support/address the need of capital for managing risks, invest in technological infrastructure, for business operations, etc.). No single promoter/promoter group can have more than 40 per cent investment in the capital of the NUE.

The promoters should upfront demonstrate capital contribution of not less than 10 per cent – Rs 50 crore -- at the time of making an application for setting up the NUE. The promoter/promoter group shareholding shall be diluted to a minimum of 25 per cent after five years of the commencement of the business of the NUE. A minimum networth of Rs 300 crore shall be maintained at all times.

Per the draft framework, the entity eligible to apply as promoter/promoter group for the NUE should be ‘owned and controlled by residents’, as defined in Foreign Exchange Management Act Regulations, with three years’ experience in the payments ecosystem as Payment System Operator (PSO)/Payment Service Provider (PSP)/Technology Service Provider (TSP).

The shareholding pattern should be diversified. Any entity holding more than 25 per cent of the paid-up capital of the NUE shall be deemed a promoter. Such an entity shall be a company incorporated in India under the Companies Act, 2013. The Company may be a ‘for-profit’ or a Section 8 Company as may be decided by it.

FDI norms

In case there is any foreign direct investment (FDI)/foreign portfolio investment (FPI)/foreign institutional investment (FII) in the applicant entity, it should fulfil, additionally, the capital requirements as applicable under the extant consolidated FDI policy guidelines.

The entity should also submit, with application of authorisation, 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).

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