On July 28, 2021, the Reserve Bank of India (RBI) allowed Non-banks to participate in its Centralised Payment Systems (CPS) viz, Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems, in a phased manner.
- In the 1st phase, authorised non-bank Payment System Providers (PSPs) such as Prepaid Payment Instruments (PPIs) Issuers, Card Networks, and White Label ATM Operators will be allowed to participate in CPS as direct members.
i.In April 2021, as part of the 1st bi-monthly monetary policy report for FY22, RBI had mentioned extending the membership of CPSs facilities such as NEFT and RTGS to non-bank payment system operators.
ii.Present Participants: So far, RBI has approved the Banks and a few selected non-banks such as, standalone primary dealers, clearing corporations of stock exchanges, central counterparties, retail payment system organisations, NABARD (National Bank for Agriculture and Rural Development), EXIM Bank, and DICGC (Deposit Insurance and Credit Guarantee Corporation) to participate and access CPS.
- Till now, Banks have been providing services to non-banks’ payment and settlement needs.
Direct Access for CPS by Non-Banks:
i.To minimise the settlement risk in the financial system and enhance the reach of digital financial services to all user segments, RBI has provided the Non-Banks with direct access for CPS.
ii.Through the direct access for CPS Non-Banks will get a separate Indian Financial System Code (IFSC), membership of Indian Financial Network (INFINET) and to use the Structured Financial Messaging System (SFMS) to communicate with CPS.
iii.They will be also allowed to maintain a settlement account with the RBI, and open a Current Account with the RBI in its core banking system (e-Kuber).
iv.Advantages of Direct Access for CPS:
- The access for CPS will reduce the non-banks’ dependency on banks, cost of routing payments through banks, and time taken for payments.
- It will also enable the non-banks to safeguard customer information, and overcome the uncertainty in the finality of the payments (as the settlement is carried out in central bank money).
Eligible Criteria for Non-bank PSPs:
i.They need to have a valid Certificate of Authorisation (CoA) from the RBI under the Payment and Settlement Systems Act, 2007 (PSS Act).
ii.It should be incorporated in India under the Companies Act, 1956/2013.
- Entities that are incorporated outside India could empower their local offices to carry out all operations under CPS.
iii.Their Net-worth has to be Rs 25 crore or as prescribed as per CoA, whichever is higher.
iv.They need to have a centralised processing system and adequate technical competence and system readiness including cyber resilience.
Ineligibility: Non-banks PSPs are not eligible for any Intra-Day Liquidity (IDL) facility from the RBI to facilitate settlement of their transactions in CPSs and they are also not allowed to sponsor sub-members.
Note – These instructions are issued under Section 10 (2) read with Section 18 of PSS Act, 2007 (Act 51 of 2007).
Recent Related News:
RBI announced the introduction of Legal Entity Identifier (LEI) for all payment transactions of Rs 50 crore and above undertaken by entities through RTGS and NEFT.
RBI made the bulk payment system under the National Automated Clearing House (NACH) to be available on all days of the week (24X7) from 1 August 2021. (Currently, it is operational only on bank working days) for customer convenience, and to take advantage of the availability of RTGS on all days of the year.
Non-banks include the PSPs and Non-Banking Financial Companies (NBFCs) that are regulated by financial sector regulators like RBI, PFRDA (Pension Fund Regulatory and Development Authority), IRDAI (Insurance Regulatory and Development Authority), SEBI (Securities and Exchange Board of India), etc.
About RTGS and NEFT:
i.RTGS is a funds transfer system where it allows a continuous and real-time settlement of fund transfers, individually on a transaction by transaction basis (without netting) (introduced in 2004).
ii.NEFT is a nationwide centralized payment system that allows the transfer of funds from one bank’s account to another (introduced in 2005).
iii.The NEFT and RTGS systems were made available 24x7x365 with effect from December 2019 and December 2020.