The Reserve Bank of India’s (RBI) concept of New Umbrella Entities (NUEs) for payment systems has generated interest among private companies. This initiative is designed to present an alternate structure to the current National Payments Corporation of India (NPCI), with a focus on creating, managing, and operating novel payment systems.
A Deep Dive into New Umbrella Entities (NUEs)
NUEs are proposed as non-profit entities set to modernize the retail space through operations in ATMs, Aadhaar-based payments, remittance services, and white-label PoS. Beyond establishing new payment systems, NUEs will hold a key role in devising contemporary payment methods, standards, and technologies.
They will oversee clearing and settlement systems while identifying and handling associated risks such as settlement, credit, liquidity, and operational. Additionally, safeguarding the system’s integrity and monitoring national and international retail payment system advancements will be their responsibility, ensuring shocks, frauds, and contagions that may negatively impact the economic system are avoided.
The Rationale Behind New Umbrella Entities
The NPCI, a non-profit, bank-owned entity that oversees settlement systems like UPI, AEPS, RuPay, and Fastag, is currently the primary organization providing retail payment systems. Concerns about the potential downsides of having NPCI as the sole entity handling all retail payment systems have been raised by players in the payment arena. The RBI’s initiative to permit other organizations to establish umbrella entities for payment systems is part of its strategy to enhance competitiveness in this sector. Entities that plan to create these NUEs hope to secure a larger stake in the digital payments sector.
Regulatory Framework Surrounding New Umbrella Entities
Ownership and control of the promoter or promoter group of the NUE should lie with residents for at least three years, with notable experience in the payments ecosystem. The shareholding pattern is expected to be diversified, and an entity holding over 25% of the NUE’s paid-up capital will be considered a promoter.
The new umbrella entity must have a minimum paid-up capital of Rs. 500 crore. Also, no single promoter or promoter group can contribute more than 40% investment to the entity’s capital. A perpetual minimum net worth of Rs. 300 crore is required.
Corporate Governance and Foreign Investment in New Umbrella Entities
NUEs are obligated to adhere to corporate governance norms and ‘fit and proper’ criteria for board member appointments. While the RBI retains the right to approve director appointments, it may also nominate a member to the NUE’s board.
Foreign investments are allowed in NUEs, given they comply with existing guidelines. This provision aims to attract diverse and balanced investments into the budding digital payment infrastructure in India.
Last Modified: February 11, 2024