The long- awaited access for centralized payment systems by non-banks from RBI have since been made available by RBI vide its instructions contained in its website as per details given below:
Access for Non-banks to Centralised Payment Systems
I am happy to get the details for implementation by interested non-banks who are willing to get involved.
Let us have the details for deeper understanding. All information from above web site color this article but my observations will conclude the discussions at the end.
Centralized payment systems – what are they and what relevance to non-banks?
Let us have the preamble of RBI for knowing the details.
“Centralized Payment Systems (CPS) in India are Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) systems, both owned and operated by Reserve Bank. As part of its drive to encourage moving towards digital payments, Reserve Bank has been continuously taking measures to improve the payment ecosystem in general, and CPS in particular. The NEFT and RTGS systems were made available 24x7x365 with effect from December 2019 and December 2020 respectively.”
Now let’s know who are now the entities eligible for utilizing the above systems (CPS).
Eligibility
Entities
Non-banks include entities like Payment System Providers (PSPs) and Non-Banking Financial Companies (NBFCs) that are regulated by Reserve Bank as also entities that are under the remit of other financial sector regulators like PFRDA, IRDAI, SEBI, etc.
To start with, access to non-banks in CPS will be enabled in a phased manner. In the first phase, only the following authorized non-bank PSPs shall be provided access –
- Prepaid Payment Instrument (PPI) Issuers;
- Card Networks; and
- White Label ATM Operators.
Interestingly, what is the criteria and can we narrate them?
Criteria
A list of 9 criteria which are reproduced.
For access to CPS the non-bank PSPs shall fulfil the following criteria:
i. Valid Certificate of Authorization (CoA) from Reserve Bank under the Payment and Settlement Systems Act, 2007 (PSS Act).
ii. Net-worth of ₹25 crore or as prescribed as per CoA, whichever is higher.
iii. Incorporation in India under the Companies Act, 2013 / 1956. Entities not fulfilling this requirement shall empower their Indian subsidiary / associate to enter into valid agreements with RBI.
iv. Implementation of centralised processing systems.
v. Adequate technical / system readiness including cyber resilience.
vi. Compliance with local payment data storage requirements issued by Reserve Bank from time to time.
vii. Adherence to RBI (Access Criteria for Payment Systems) directions 2017 , RTGS System Regulations, NEFT Procedural Guidelines and other instructions prescribed by Reserve Bank from time to time.
viii. Satisfactory record of compliance to conditions laid out in CoA and regulatory guidelines.
ix. Recommendations of the concerned regulatory / supervisory department of Reserve Bank.
Is there any thing special but valid certificate of authorization from RBI with attendant conditions of functioning and concerned department of RBI to recommend the case?
Many of the entities do have foreign incorporation in which case their corporate office to get the permission and permit local ones to carry out the operations but responsible for all operations. This has attracted enough discussions in social/legal media and clearly laid out that the corporate office will take the responsibility.
Other interesting conditions?
- Non-bank PSPs not to avail intra-day liquidity but to approach their bankers for ready line of credit facility. I am very sure all these bodies enjoy substantial credit line for operations already.
- Yes, they can’t sponsor sub-members.
- Adherence to the terms and conditions specified for maintenance of Current Account in Reserve Bank’s core banking solution (e-Kuber), membership to INFINET, use of SFMS, etc., a must.
Depending upon the membership under RTGS, some categories of PSPs can participate in NEFT and the benefits of NEFT are already known to all of us.
But let us learn them.
Nature of transactions that can be executed shall depend upon the type of membership approved for RTGS. Based on requirement, some categories of PSPs shall be permitted to participate in NEFT also.
But the details of access for non-bank PSPs to CPS are as under:
| PSP | RTGS Membership Type and Nature of Transactions | NEFT availability |
| PPI Issuers (D) | Customers, own / other bank / non-bank account transfers | Yes |
| Card Networks(C) | Multilateral net settlement batches, own account transfers | No |
| WLA Operators(D) | Customer, own / other bank account transfers | No |
Yes, having been admitted as members, what is the use of RTGS and NEFT systems?
RTGS / NEFT customer payments initiated by:
a. PPI issuers to merchants / payment aggregators;
b. WLA operators to agencies handling ATMs; and
c. Full-KYC PPI customers to load the PPIs from their bank account.
RTGS inter-bank transfers initiated by:
a. Non-bank PSPs to maintain sufficient balance in their escrow account with member bank/s based on net debit or credit position; and
b. WLA operators and PPI issuers to other member banks / non-banks.
Multilateral Net Settlement Batches (MNSB) posted in RTGS by:
a. Card networks for settlements, dispute management, annual fee collections, etc.;
b. Direct credit to WLA operators in NFS settlements; and
c. NPCI allowing settlement of transactions of non-bank PSPs without involving their sponsor bank/s.
Now time to delve in operational aspects too.
Process delineated as under:
For applying for membership, one has to be guided by RBI (Access Criteria for Payment Systems) directions 2017.
To whom to submit application? All applications for membership to CPS shall be submitted to the Chief General Manager, Department of Payment and Settlement Systems (DPSS), Reserve Bank of India (RBI), Central Office (CO), 14th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001.
Format is prescribed in Appendix – 1 “Covering letter for membership to Centralized Payment System”, of RBI (Access Criteria for Payment Systems) directions 2017, together with annexures.
RBI has assured to clear applications within 60 days of receipt.
On approval of the application, DPSS, CO shall issue a letter of approval to the non-bank entity with a validity of six months, within which the entity shall ensure participation in CPS. DPSS, CO shall forward the application to RBI, Mumbai Regional Office (MRO), for further processing of RTGS and NEFT membership.
DPSS, MRO shall act as the point of contact for guidance of the non-bank entity.
Non-bank entities shall choose the type of access to the RTGS system, i.e., SFMS member interface, Web service interface or Payment originator module through INFINET, as per their convenience and requirement in consultation with Indian Financial Technology & Allied Services (IFTAS) and Reserve Bank.
Non-bank entities shall approach RBI, MRO for going live in RTGS, NEFT, getting INFINET membership, getting SFMS membership, opening of Current Account (in e-Kuber), opening of Settlement Account in RTGS, for necessary technical support from IFTAS for INFINET connectivity and SFMS integration, etc.
Let me narrate other operational aspects too for more clarity.
Item 4.2 extensively deals with these aspects which are summarized as under.
- RTGS Settlement Account shall be funded from Current Account at start of the day for an approved amount and balance, if any, in RTGS Settlement Account at end of the day, shall be transferred back to the Current Account.
- It is equally understandable that periodical transfer of funds from Current account to RTGS and other operational functions 24X7 monitoring is very important. It has been stressed that Current account with RBI may not help RTGS accounts.
Equally important is that non-bank PPI issuers shall transfer funds from their escrow account/s with scheduled commercial bank/s to Current Account with RBI and from Current Account with RBI to the escrow account/s for operational purposes.
The balances in Current Account with the Reserve Bank shall not be reckoned for the purpose of maintenance of daily balance in escrow accounts.
Now, some one may raise the benefits of non-banking entities to join Centralized Payment Systems?
Direct access for non-banks to CPS lowers the overall risk in the payment’s ecosystem. It also brings advantages to non-banks like reduction in cost of payments, minimizing dependence on banks, reducing the time taken for completing payments, eliminating the uncertainty in finality of the payments as the settlement is carried out in central bank money, etc.
The risk of failure or delay in execution of fund transfers can also be avoided when the transactions are directly initiated and processed by the non-bank entities.
RBI has noted that many non-banking entities innovate more, attend to customers more and give a new dimension in offering customer service which is a routine feature with little satisfaction to an average customer with any nationalized bank who with their feeble attempts to introduce new products have failed at execution stage.
Conclusion
We never had the system of offering latest products to an average customer on a par with the best in the world. Western world offers more products but with a heavy price of customer charges. Many small customers in the West get their accounts adjusted by even service charges only if periodical operations are not carried out by any customer.
Private banks have held a march over public sector banks who are bogged down lesser service charges, lesser motivation/ admission of talent and unwillingness to admit new innovations .
Now offering non-banking entities to use CPS transforms them to update their functional operations with world class standards, increase employment and offer a personal touch in utilizing their services as a customer. Who can argue that more IDBI or Central Bank of India are not on the radar of the central government?
The purpose of explaining the above RBI instructions opens up the window for progressive investors like us to learn the latest facilities from RBI to maximize our investments.
Let non-banking entities conquer the world with the best service and outstanding products from India.
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