India’s central bank, the Reserve Bank of India (RBI), is reportedly looking into the possibility of providing non-bank entities, including local Fintech firms and insurance providers, direct access to handling RTGS (real-time gross settlement) and NEFT (national electronic funds transfer) transactions – which would be consistent with international best practices.
Referencing examples of financial market regulators in the UK and Switzerland, the RBI noted in its recent financial stability report that gradually providing access to centralized payments systems (CPS) to nonbank entities in India could potentially lower the costs and make market access to capital easier to acquire.
The RBI stated in its biannual report:
“The Reserve Bank will examine the case for increased participation of non-banks in CPS. Internationally, central banks are expanding access to payment systems by enabling various types of non-banks to become members.”
At present, only standalone or independent primary dealers, clearing corporations, central counterparties, retail payment system organizations, and a select group of financial institutions including NABARD, Export-Import Bank of India (EXIM Bank) and Deposit Insurance are able to gain access to these types of systems.
The RBI also mentioned that it is currently considering the possibility of establishing New Umbrella Entities (NUE) for local retail payment systems to work alongside the National Payments Corporation of India (NPCI).
The reserve bank noted:
“Over a decade, the National Payments Corporation of India (NPCI) has performed as the sole umbrella organization for retail payment systems in India. Availability of NUE offering products which will lead to the redundancy of existing systems can, besides addressing concentration risk, also encourage competition and innovation, thus contributing to financial stability.”
This type of setup would not only significantly reduce or eliminate the systemic risks of having a single entity managing the majority, or almost 60%, of all retail online payments, but it will also improve the reach of digital payments to a larger group of local consumers, which in turn could reduce the dependence on cash payments, the RBI stated.