RBI frames rules for new for-profit umbrella entity for retail payments

New Delhi: The Reserve Bank on Tuesday unveiled the framework for setting up umbrella entities for operating pan-India retail payments systems and invited applications from eligible companies by February 26, 2021.

As per the framework, the companies with a net worth of over Rs 500 crore will be eligible to set up an umbrella entity which among other things will be permitted to set up, manage and operate new payment systems in the retail space comprising ATMs, White Label PoS, Aadhaar-based payments and remittance services.

"The Reserve Bank invites applications for the umbrella entity which shall be submitted in the prescribed form (Form A) till the close of business on February 26, 2021," said a central bank press release.

Among other things, the umbrella entity will be permitted to operate clearing and settlement systems for banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational; and preserve the integrity of the system.

It will also be expected 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 and/or the economy in general, the RBI said.

"All entities eligible to apply as promoter/promoter group of the umbrella entity shall be owned and controlled by resident Indian citizens'," it added.

In case of any foreign direct investment in the applicant entity, it will have to fulfil, additionally, the capital requirements as applicable under FEMA (Foreign Exchange Management Act), and necessary approval from the competent authority.

The guidelines also elaborate on the 'fit and proper' requirements for promoters/promoter groups.

"The umbrella entity shall have a minimum paid-up capital of Rs 500 crore. No single promoter/promoter group shall have more than 40 per cent investment in the capital of the umbrella entity," the guidelines said.

The promoters or promoter groups should upfront demonstrate the capital contribution of not less than 10 per cent -- Rs 50 crore -- at the time of making application for setting up the umbrella entity.

The balance capital will be secured at the time of commencement of business/operations.

It further said the promoter/promoter group shareholding can be diluted to a minimum of 25 per cent after 5 years of commencement of business of the umbrella entity.

However, a minimum net worth of Rs 300 crore should be maintained at all times, as per the guidelines.

RBI said the application for setting up the umbrella entity should contain a detailed business plan covering the payment system/s proposed to be set up and/or operated along with other documents to duly establish its experience in the payments ecosystem.

The applications, RBI said will be taken up for processing only after the last date of receipt of applications, in the order of their receipt at the Reserve Bank of India.

Scrutiny of applications will be undertaken by an External Advisory Committee (EAC).

Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) will be the final authority on issuing authorisation for setting up umbrella entity/entities.

The RBI will endeavour to complete the process within a period of six months.