Co-operative banks in India will now be permitted to deploy their own and third party point of sale (POS) terminals, the Reserve Bank of India (RBI) said in a notification. The RBI said that this was done to increase the number of digital transactions in the country. Third party POS players in India include PayU, MSwipe, Ezetap, ItzCash and Oxigen.

However, the RBI placed some requirements for co-operative banks to deploy their own POS terminals. They need to have a minimum net worth of Rs 25 crore with gross non-performing assets (NPAs) less than 7% and net NPAs than 3% in the preceding financial year. The RBI also said that there should not be any default in maintaining cash reserve ratio (CRR) and statutory liquidity requirements (SLR) in the preceding financial year.

For deploying third-party POS terminals, co-operative banks will have to have made a net profit in the preceding financial year. The bank should obtain get the consent of their merchant customers before offering third party POS terminals and disclose the process of settlement. The banks should maintain a minimum capital adequacy ratio of  9% in the preceding financial year and the board should consist of at least two professional directors.

Co-operative banks will also have to undergo an audit of their IT systems and make sure that their core banking software (CBS) six months before applying.

Dismal number of POS in India

The number of POS terminals in India is dismal. For the month of March, there were 2.53 million POS terminals deployed by commercial banks while there are more than 800 million debit cards and 29.84 million credit cards in circulation. A 2015Ernstt and Young report said there were 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.

A closer at the POS terminals shows a concentration of the top banks in the country.  State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Corporation Bank – have the highest number of POS terminals accounting for more than 80% of all terminals in the country.

Meanwhile, there is a concentrated effort by the government to improve the number of POS terminals following the demonetization of Rs 1000 and Rs 500 notes. During the 2017-18 budget, finance minister Arun Jaitley reiterated the goal of setting up 10 lakh POS terminals in the country.