RBI places draft framework to set up alternative retail payments system

The Reserve Bank of India (RBI) on Tuesday proposed a draft framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems. The proposed retail payment system has been planned in line with the National Payments Corporation of India (NPCI).

The new entity will 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.

Capital Provisions for creation of New Umbrella Entity (NUE) for Retail Payment Systems

The NUE shall have a minimum paid-up capital of Rs.500 crore.

No single promoter/promoter group shall have more than 40% investment in the capital of the NUE.

The promoters shall upfront demonstrate the capital contribution of not less than 10% i.e. Rs.50 crore at the time of making an application for setting up of the NUE.

The promoter/promoter group shareholding shall be diluted to a minimum of 25% after 5 years of the commencement of business of the NUE.

A minimum net worth of Rs300 crore shall be maintained at all times.

Scope of Activities:

It will set-up, manage and operate new payment system especially in the retail space comprising of but not limited to ATMs, Aadhaar-based payments, white-label PoS and remittance services.

It will develop new payment methods, standards and technologies and monitor the issues related to it in the country and international destinations. It will also have to take care if developmental objectives like enhancement of awareness about the payment systems.

It will be responsible for the operation of the clearing and settlement systems and will have to identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system. It will have to 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(s) and / or the economy in general.

It will be responsible to carry on any other business as suitable to further strengthen the retail payments ecosystem in the country.

Governance Structure

The NUE will have to conform to the norms of corporate governance along with 'fit and proper' criteria for persons to be appointed on its Board. The Reserve Bank will reserve the right to approve the appointment of Directors and also to nominate a member of the Board of the NUE.

Fit and Proper Criteria

RBI in its release said, the entity/promoter/promoter group shall conform to the Reserve Bank's 'fit and proper' criteria. The provisions of the criteria include

1. Director of the Entity / Promoter Company / Group Company shall be deemed to be a "fit and proper" person if:

a) Such a person has a record of fairness and integrity, including but not limited to –

(i) Financial integrity

(ii) Good reputation and character

(iii) Honesty

b) Such a person has not incurred any of the following disqualifications –

(i) Convicted by a court for any offence involving moral turpitude or any economic offence or any offence under the laws administered by the RBI

(ii) Declared insolvent and not discharged.

(iii) An order, restraining, prohibiting or debarring the person from accessing/dealing in any financial system, passed by any regulatory authority, and the period specified in the order has not elapsed.

(iv) Found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

(v) Is financially not sound.

2. The entity shall have a record of sound credentials and integrity.

3. In case of any dispute on fulfilment of fit and proper criteria, Reserve Bank's decision shall be final.