Reserve Bank of India has issued a notification regarding access for non-banks to a centralized payment system on July 28th, 2021[1] to all chairman, managing directors, or chief executive officers of authorized non-bank payment system providers.
The notification refers to paragraph 9 of the press release dated April 7th, 2021 - statement on the development and regulatory policies[2] that deals with Centralized Payment System (CPS) such as real-time gross settlement (RTGS) and national electronic transfer fund (NEFT) and membership of entities other than banks To encourage the participation of non-banks across payment system and it was proposed to enable payment system operators in a phased manner which will be regulated by Reserve Bank of India. This payment system is expected to minimize settlement risk in the financial system. The notification also refers to master directions on access criteria for payment system dated January 17th, 2017[3], and updated as of July 28th, 2021 which has prescribed the criteria for the access of centralized payment systems.
When non-banks are given direct access to centralized payment systems, it lowers the overall risks in the payment ecosystem. Non-banks get many advantages like reducing the time taken for completing payments, minimizing dependence on banks, reduction in the cost of payments, eliminating the uncertainty in the finality of the payments as the settlement is carried out in central bank money, etc. when the transactions are directly initiated and processed by the non-bank entities The risk of failure ordeal in the execution of fund transfers can be avoided. As per Reserve Bank of India’s notification after reviewing extant arrangements and discussing with Payment System Providers (PSP’s), in the first phase non-bank payments system providers such as PPI insurers, card networks, and white label ATM operators Shall be made eligible to participate in the centralized payment system as direct members as per given process in the annexure attached to the notification. As per the annexure attached in the notification, non-banks include entities like non-banking financial companies and Payment System Providers that are regulated by RBI as also Entities that are under the remit of other financial regulators like Securities and Exchange Board of India, insurance regulatory and development authority of India, pension fund regulatory and development authority, etc. Annexure also the Annexure States about criteria, membership type, and nature of the transaction, operational aspect, process for applying for direct access to CPS by non-banks, and other operational aspects.
Master Directions on access criteria for payment system stated January 17th, 2017 has also been modified and updated. Reserve Bank of India has also placed a set of FAQs on the subject on its website for operational and user convenience. Section 10(2) read with Section 8 of payments and settlement system act, 2017 (Act 51 of 2007) allows the issuance of these instructions and it will come into effect from the date of this circular.
[1] RBI/2021-22/73
DPSS.CO.LVPD No.S290/04.04.009/2021-22
[2] Statement on Developmental and Regulatory Policies, Press Release: 2021-2022/17
[3]Master Directions on Access Criteria for Payment Systems (Updated as on July 28, 2021)
RBI/DPSS/2016-17/51
Master Direction DPSS.CO.OD.No.1846/04.04.009/2016-17
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