credit cards

The Reserve Bank of India (RBI) said that it will be setting up an Acceptance Development Fund (ADF) to boost electronic payments and expand card acceptance network in India. The ADF will be operated by the Indian Banks Association (IBA) and will set the rules for contribution and utilisation of funds. Guidelines for the ADF framework will be issued by December 31, 2016.

The RBI had issued a consultation paper for improving the card acceptance infrastructure in March. It proposed setting up an ADF which will be funded by card issuers to build a corpus by diverting a percentage of their transaction revenue into the fund which is then invested in structured initiatives to expand acceptance infrastructure.

The RBI report also noted that growth in electronic payments is not uniform across all segments nor is it visible at all locations across the country. Particularly, in the context of cards, while the card base is increasing rapidly, activation or usage rates are quite low, especially for purchase of goods and services. Card usage at ATMs, on the other hand, is quite high.

An Ernst and Young report points out that the country has the lowest POS terminal penetration in the world. The report further adds that there are only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people.

ECBs for startups

Startups will now be permitted to raise $3 million every year from overseas through the External Commercial Borrowings (ECB) route, the RBI said.Funds may be raised in equivalent Indian rupees, any other convertible currency or a combination of both. Guidelines will be issued by end-October 2016.

However, this will probably applicable to startup which comply with the rules and regulations laid down by the Government and the DIPP. They define a startup as a company which is less than five years and its turnover has not exceeded Rs 25 crore for the financial years.

In February, the RBI announced a number of regulatory changes to operations of startups in India allowing an easier exit for venture capital firms who had invested in startups. To smoothen flow of funds to startups, easier transfer of shares between residents or non-resident investors was announced. In addition,  startups can issue FDI instruments such as convertible bonds, which are debt instruments where a holder can convert the bond into shares of a company after a specified time period.

Image source: Flickr user frankieleon under CC BY 2.0