SBI plans to build an entity to rival NPCI

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State Bank of India is intending to build an entity to rival National Payments Corporation of India (NPCI) and get into the country’s highly competitive, yet fast-growing, digital payments ecosystem as a primary stakeholder.

The senior management of India’s largest lender has held introductory discussions and is “examining” the option of applying for a license under the Reserve Bank of India’s New Umbrella Entity (NUE) framework for retail payments.

The structure for the NUE was released by the Reserve Bank of India last week, with the central bank also opening the window for applications. Individuals receiving approval can set up a payments company for owning and operating a pan-India digital payments network, exercising the same powers as NPCI.

Reserve Bank of India had released the framework for the NUE, with the central bank also unlocking the window for applications. Individuals receiving approval can set up a payments company for owning and operating a pan-India digital payments network, implementing the same powers as NPCI.

An SBI spokesperson said that the framework is also being assessed by SBI, as the presence of an additional being may lead to further deepening of the digital retail payments ecosystem. Since many more innovative and affordable products will be made accessible on this platform, it will further increase the reach and expanse of financial inclusion.

While the discussions are at the initial stage, one of the ways the new payments entity could be arranged is through a combined ownership-based model where SBI, as a promoter, could invite other state-owned banks to form an association.

SBI partnering with fintech companies could aid the state-owned lender offer some of its digital initiatives through its banking channel.

As per the RBI guidelines, SBI will need to offer at least Rs 500 crore as paid-up capital, if the entity does get the green light.

The new entity, as predicted by the RBI, would help in achieving one of its stated objectives of democratizing and “derisking” India’s growing retail payments landscape. The NPCI currently controls over 60 percent of the volumes through vital channels such as the Immediate Payment System, Unified Payments Interface, and National Financial Switch.

Corporates including Reliance Industries, Paytm, BSE, and the National Stock Exchange are exploring the possibility of applying for the coveted license.

SBI is a shareholder in the NPCI, which is a ‘not-for-profit’ entity registered under Section 8 of the Companies Act and owned by a group of leading public and private sector banks.

According to the RBI’s framework, the scope of the approved entity includes, “setting up and operating new payment systems” comprising ATM networks, point-of-sale services, Aadhaar-based payment systems, and remittances. However, the individual’s systems must be interoperable with the NPCI’s existing payment networks.

The public sector lender plays an important role in India’s digital payments and financial inclusion mandate. By the end of June 2020, the bank had 123.9 million Pradhan Mantri Jan Dhan accounts. It controlled 1,059 million UPI transactions and 26% of all remittance transfers on the app during the June quarter. Additionally, SBI has 58,582 ATMs, 62,000 business correspondents, and nearly a million Aadhaar-based touchpoints, as per its latest investor presentation.

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