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RBI to take cues on issuing NUE licences from a committee after hitting pause on programme

By setting up a five-member panel, the RBI may be moving ahead with its NUE programme after all.

A five-member committee will be set up by the Reserve Bank of India (RBI) to study applications, and submit recommendations on new umbrella entity (NUE) licences, the Economic Times reported. RBI Chief General Manager P Vasudevan will lead the five-member committee, the report added. The details of the other four members of the committee are not known yet. 

The committee will be tasked with examining many aspects of NUE such as the macroeconomic impact of the scheme and security risks. ET’s sources informed that the committee’s recommendations will be taken into account before licences are issued.

The announcement is a significant indicator of RBI’s intention to move ahead with the programme. The central bank’s recent decision to defer the issuance of NUE licences plunged the scheme into uncertainty with no clarity from RBI. The for-profit NUE entities were explored after the RBI became wary of the growing size of payments being concentrated with a single operator — the National Payments Corporation of India. The NPCI processed over Rs. 128 lakh crore worth of financial transactions in 2020-2021 alone. 

Why did RBI postpone the programme? 

Several reasons were given by the RBI when it decided to shelve the NUE programme, according to a LiveMint report.  

  • Lack of clarity on the security of data vis-á-vis foreign entities
  • Mastercard’s non-compliance with local data storage norms and the subsequent ban on the company from issuing new credit cards. 
  • Data breaches at MobiKwik and BigBasket dented the ability of the private sector to handle threats against its handling of payment transactions.

The All India State Bank of India (SBI) Staff Federation and the UNI Global Union had earlier urged the central bank to do away with the “whole process of NUE licensing” and focus on strengthening the NPCI instead. 

The groups, in a letter, warned that participation of multinational companies can lead to the abuse of user data. They had also said that privatisation would compromise data safety. 

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What is NUE? 

The RBI, in its January 2019 paper, had expressed interest in setting up NUEs as a way to promote competition within the digital payments market. It added that there was a need to reduce concentration risks that arise with NPCI being the single operator. 

There was significant interest from many startups, fintech companies, large banks, and global financial giants as an NUE license allows them to take a slice out of India’s burgeoning payments market. The slice comes in the form of profit which license holders will be able to earn by charging fees for transactions, unlike the NPCI which is designated as a non-profit. 

An NUE will be expected to: 

  • Interact and be interoperable with the NPCI’s systems.
  • Produce a retail payments rail in the Automated Teller Machines (ATM) space, for White-Label Point of Sale machines, Aadhaar-based payments and remittance services, and other digital modes of payments
  • Develop methods, standards, and technologies for their payments systems
  • Take care of developmental objectives like enhancement of awareness about the payment systems
  • Manage settlement, credit, liquidity, and operational risks of the system

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