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Monday, May 10, 2021

Keeping costs in mind, RBI not in favour of supervising NUEs

One of the major reasons for the central bank being in favour of letting either the NPCI or a newly formed entity take over the supervisory role is the high cost of setting up a new division at the RBI, the officials said.

Written by Aashish Aryan | New Delhi |
Updated: April 12, 2021 7:59:16 am
In November last year, the number of shareholders was further expanded to include new payment platforms such as Paytm Payments Bank, One Mobikwik Systems Private, Amazon Pay Indian Private, PhonePe Private and Pine Labs.

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

One of the major reasons for the central bank being in favour of letting either the NPCI or a newly formed entity take over the supervisory role is the high cost of setting up a new division at the RBI, the officials said. “In our initial discussions, it (high cost) was flagged more than once. 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,” an official said.

An email sent to the RBI, seeking confirmation of its reluctance to have any supervisory role in the NUE set-up, did not elicit any response till the time of going to press.

Explained

Soft touch approach by govt

the RBI’s reluctance to have direct control over NUEs could also signal a soft touch approach by the government, allowing the sector to rapidly. The control, if given in the hands of NPCI, could raise some protests from newer payment platforms which are already at loggerheads with the agency.

Last year in August, the RBI had released a framework for setting up NUEs, which would be able to carry out various payment services, akin to the ones being provided by the NPCI right now. The purpose of allowing private companies and entities to apply for a NUE licence was to expand the ambit and coverage of traditional and new financial instruments as well as allow applicants to “set up, manage and operate new payment system”. 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. The NUE should maintain a minimum net worth of Rs 300 crore at all times, said the RBI guidelines.

The central bank’s decision to allow companies to apply for a NUE has attracted considerable interest from banks such as State Bank of India, new age fintech companies such as Paytm, and global and Indian conglomerates such as Amazon and the Tata group, respectively. Banks such as State Bank of India, ICICI Bank, and HDFC Bank, which are the major shareholders in NPCI, have expressed interest, while others such as Amazon and Paytm, which also became shareholders last November are also reported to have applied for the NUE.

The interest of banks and some other payment platforms has also raised questions of conflict of interest as the NUE will be allowed to operate as a for-profit organisation, while the NPCI is a not-for-profit entity.

An initiative of the RBI and the Indian Banks’ Association, the NPCI was incorporated with an “intention to provide infrastructure to the entire banking system in India for physical as well as electronic payment and settlement systems”. Though initially it had only 10 large public and private sector banks as core promoters, the shareholding was opened up in 2016 to 56 member banks to include all sectors of banking.

In November last year, the number of shareholders was further expanded to include new payment platforms such as Paytm Payments Bank, One Mobikwik Systems Private, Amazon Pay Indian Private, PhonePe Private and Pine Labs. The NPCI now has 67 shareholders.

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