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RBI Released Framework for Authorisation of Pan-India Umbrella Entity for Retail Payments 

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RBI releases framework for retail payments systemsOn August 18, 2020, Reserve Bank of India (RBI) released the “Framework for authorisation of pan-India Umbrella Entity for Retail Payments” on the lines of the feedback received on the “draft framework for authorisation of a pan-India New Umbrella Entity for Retail Payment Systems” which was placed on Reserve Bank’s website on February 10, 2020 for public comments.

  • In this regard, the apex bank has invited applications from eligible companies by February 26, 2021, the scrutiny of which will be undertaken by an External Advisory Committee (EAC).
  • The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), will be the final authority to issue authorisation for setting up umbrella entity / entities for retail payments comprising of Automated Teller Machines (ATMs), White Label PoS (point of sale system), Aadhaar-based payments and remittance.

Incorporation of Umbrella Entity under Framework:

The entity will be incorporated under Companies Act, 2013 and may be a for-profit or a Section 8 Company. It will be authorized by RBI under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007 and will also be governed by the provisions of the PSS Act and other relevant directives, and prudential regulations.

  • The Reserve Bank retains the right to approve the appointment of Directors as also to nominate a member on the Board of the umbrella entity.

Key Points from Framework:

-The minimum paid-up capital of the umbrella entity should be Rs 500 crore.

-All entities eligible to apply as promoters of the umbrella entity should be owned and controlled by resident Indian citizens under the Foreign Exchange Management Act, 1999 (FEMA). 

  • Any entity holding more than 25% of the paid-up capital but less than 40% of the umbrella entity will be deemed to be a Promoter.
  • Promoter should upfront (payment made in advance) minimum capital contribution of 10% i.e. Rs 50 crore at the time of making an application for setting up of the umbrella entity.
  • The Promoter shareholding can be diluted to a minimum of 25% after 5 years of the commencement of business of the umbrella entity. A minimum net-worth of Rs 300 crore shall be maintained at all times.

-In case of any Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) in the applicant entity, it should fulfil the capital requirements under the rules framed under FEMA, as amended from time to time.

Recent Related News:

In August, 2019, the government has exercised the Finance (No.2) Act, 2019 (23 of 2019) for amending the National Housing Bank Act, 1987 resulting in transfer of regulation of housing finance companies (HFCs) to Reserve Bank of India (RBI) from the National Housing Bank (NHB). In this regard, on June 17, 2020, RBI being a new regulator has proposed changes to be prescribed for HFCs with an aim to increase their efficiency and address concerns of liquidity and double financing.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).