A reference is invited to Paragraph 9 of the Statement on Developmental and Regulatory Policies dated 7 April 2021 wherein it was announced that the Reserve Bank of India (RBI) shall encourage participation of non-banks in Reserve Bank of India-operated Centralised Payment Systems (CPS) viz. Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems, in a phased manner. A reference is also invited to the Master Directions on Access Criteria for Payment Systems dated 17 January 2017 wherein Reserve Bank had prescribed criteria for access to CPS.
Direct access for non-banks to CPS lowers the overall risk in the payments ecosystem. It also brings advantages to non-banks like reduction in cost of payments, minimising dependence on banks, reducing the time taken for completing payments, eliminating the uncertainty in finality of the payments as the settlement is carried out in central bank money, etc. The risk of failure or delay in execution of fund transfers can also be avoided when the transactions are directly initiated and processed by the non-bank entities.
Centralised Payment Systems (CPS) in India are Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) systems, both owned and operated by Reserve Bank. As part of its drive to encourage moving towards digital payments, Reserve Bank has been continuously taking measures to improve the payment ecosystem in general, and CPS in particular. The NEFT and RTGS systems were made available 24x7x365 with effect from December 2019 and December 2020 respectively.
One of the ways to provide impetus to digital payments is to extend the access to payment systems to more entities. This is also engaging the attention of other central banks globally. Reserve Bank’s Vision Document on Payment and Settlement Systems 2019-2021 includes review of membership of CPS to enable access neutrality between banks and non-banks and to develop a framework for settlement risk management with increased participation of non-banks. The document also refers to the need for a single national settlement account for all authorised card networks.
Apart from banks, very few select non-banks have been given approval to participate in CPS so far. The non-banks which are permitted membership / access to CPS are standalone primary dealers, clearing corporations of stock exchanges, central counter parties, retail payment system organisations, select financial institutions (NABARD, EXIM Bank) and DICGC.
Banks have been providing the services to non-banks for their payment and settlement needs. However, if the bank, which provides payment services to non-banks, is impacted, it can cause business disruption to the non-banks also. The disruption, even if temporary, could have the potential to cause and spread instability in the system. Consequently, the customers of the non-banks, who are using their products and services, would also get affected.
Meaning of Direct Access to CPS
Allotment of a separate Indian Financial System Code (IFSC).
Opening a Current Account with the Reserve Bank in its core banking system (e-Kuber).
Maintaining a settlement account with the Reserve Bank.
Membership of Indian Financial Network (INFINET) and use of Structured Financial Messaging System (SFMS) to communicate with CPS.
Benefits of Direct Access
Efficiency: For non-banks, the cost of routing payments through banks can be minimised. The risk of failure or delay in execution of fund transfers can be eliminated if the transactions are directly initiated by non-banks.
Competition and innovation: Non-banks increasingly and actively offer financial services which hitherto were the sole domain of banks. They are seen to be agile in coming up with innovative products and solutions as well. Direct access to CPS can further enable them to leverage technology to offer customised choices to consumers. They can use their capabilities to assimilate and analyse data to support their innovations and solutions. As non-banks compete in the same segment that banks operate, direct access can provide level playing field, minimising the need to use intermediaries.
Risk management and stability: As the settlement is carried out in central bank money, it greatly reduces the uncertainty in finality of the payments and settlement risk. Expanding the access and participation facilitates diversity and resiliency of the ecosystem.
Data protection: Direct access to CPS can enable the non-banks to safeguard customer information and fund flows, which may not be possible when using banks to provide payment services.
Non-banks include entities like Payment System Providers (PSPs) and Non-Banking Financial Companies (NBFCs) that are regulated by Reserve Bank as also entities that are under the remit of other financial sector regulators like PFRDA, IRDAI, SEBI, etc.
On a review of extant arrangements and after detailed discussions with Payment System Providers (PSPs), it is advised that, in the first phase, authorised non-bank PSPs, viz. PPI Issuers, Card Networks and White Label ATM Operators shall be eligible to participate in CPS as direct members as per the approach presented in the Annexure hereto.
The Master Directions on Access Criteria for Payment Systems dated 17 January 2017 are also being modified accordingly. For operational and user convenience, Reserve Bank has placed a set of FAQs on the subject on its website.
These instructions are issued under Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007) and come into effect from the date of this circular.