The Finance Ministry has raised concerns over the State Bank of India (SBI), HDFC Bank and Bank of Baroda (BoB) combine which reportedly plans to jointly apply for a New Umbrella Entity (NUE) license from the Reserve Bank of India (RBI), the Economic Times reported. Given that the three banks are existing shareholders in the National Payments Corporation of India (NPCI), if their consortium were to receive an NUE license to set up a rival retail payments organisation to the NPCI, it would be a conflict of interest.
So far, apart from the SBI-HDFC-BoB banking consortium, Reliance Jio Infocomm and the Tata Group are reportedly in the running to apply for an NUE license. It was also reported that tech giants like Google and Amazon may also pickup a minor stake in one of these applicants. The only entity that has formally announced that it would apply for a license is So Hum Bharat Digital, which is backed by veteran payments industry executives Navin Surya and Vishwas Patel and Yes Bank.
Citing unnamed sources, the report says that the Finance Ministry does not want public sector banks to create a rival payments organisation to the NPCI as it could lead to competition and monopoly risks. SBI and HDFC Bank are the two largest banks in the country, with the largest digital banking user base. Further, the report says that business presentations by the applicants have received some push back and have been delayed which may force the RBI to extend the deadline to submit applications.
The three banks have a 24.2% stake in the NPCI, at present. To avoid conflicts of interest it may need to sell its stake in the retail payments organisation. If they were to create alternatives to the NPCI’s Unified Payments Interface (UPI) or National Financial Switch, NPCI would not only lose out from transaction volumes moving away but it would also lose out on the fee income banks pay it as the facilitator of these platforms. According to NPCI data, in January 2021 SBI processed 664.75 million transactions while HDFC Bank processed 206.65 million and BoB processed 126.31 million transactions on UPI, which gives them a combined market share of 43.3% as anchor banks which process UPI transactions.
According to the RBI’s NUE guidelines, the new license holder to operate and develop retail payments platforms can be profit-making unlike the NPCI which is currency a not-for-profit entity. The NUE is expected to develop interoperable payments solutions, that can work with the NPCI’s existing payments platforms, to help grow the digital payments pie in the country by attacking new use-cases and target markets. While the RBI has invited applications till the end of February 2021, an expert committee will evaluate the applications after which the Board for Regulation and Supervision of Payment and Settlement Systems will take a final call on granting licenses, within a six-month period. The NUE guidelines state that the license holder will need to create new solutions for ATM networks, point-of-sale (PoS) services, Aadhaar-based payments and remittances.
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