Mumbai: The Ministry of Finance raised concerns about the State Bank of India's plan to forge a joint venture with HDFC Bank NSE -0.13% Ltd. Bank of Baroda NSE -1.10% under the Central Bank`s new umbrella (NUE) framework, concerned Three people with knowledge of the matter told that it could put pressure on the National Payments Corporation of India (NPCI).
People said the government does not want public sector banks to create NUEs that would rival the country`s leading payment institution. They said the proposed joint venture led by SBI NSE -2.18% had been cited by Finance Ministry officials regarding possible competition charges and monopoly risks.
One person said: "The Finance Ministry has reviewed the situation and does not want state banks to compete with major Indian government projects like RuPay and UPI (Unified Payment Interface), which is managed by NPCI. "Concerns have been reported about co-ownership between NPCI and the bank-led NUE. Finance ministry officials see this as a significant competition risk."
SBI, HDFC Bank, and Bank of Baroda did not respond to inquiries. Concerned banks could go ahead with separate NUE partnerships to allay government and regulator concerns.
Another said: "Most of the NPCI traffic comes from the SBI and if they create their own payment institution, it will be a slow death for the former." But that doesn't mean the coalition shouldn't be allowed to go ahead with its plans. Only SBI spends much more on IT infrastructure than NPCI, and as a country, India needs more competition in payments for a thriving digital market. "
NPCI is owned by a consortium of banks and licensed fintech companies. SBI, HDFC Bank, and Bank of Baroda have a combined 24.2% stake in NPCI. All three handle more than 50% of all digital transactions, including those made by their clients and third-party networks like UPI.
"Another concern expressed by the Ministry of Finance is also the potential risk of monopoly, as these are the three largest retail banks in India. The aim of bringing NUE to a competitor of NPCI was to remove risks from the ecosystem, but this it can counter-intuitive, "said the second-mentioned person.
B2B was the first to report that these banks were planning to float their NUE because they want more independence in processing online transactions.
The bank-led consortium also has a foreign card scheme operator as a partner and some smaller ecosystem partners. The consortium was in the advanced stages of submitting its proposal to the Reserve Bank of India (RBI) before the February 26 deadline when the Finance Ministry raised concerns.
The NUE framework was unveiled in August last year, and the central bank also opened the window for applications. Entities that receive approval can create a payments company to own and operate a pan-India digital payment network, exercising the same powers as NPCI.
According to a person directly involved in the matter, the central bank is closely monitoring the situation and could extend the deadline for submitting proposals. The source said the Finance Ministry pointing to the plan could be due to complaints from ecosystem stakeholders.
"Representations have been made to the Ministry of Finance that the SBI-HDFC Bank-BoB consortium will be a conflict of interest because they have a stake in NPCI. Similar complaints have also been filed in the past by (NPCI) against banks for negotiating with Visa and MasterCard. "Until this logjam is sorted, I think RBI will have to extend the application deadline."
Meanwhile, it emerged that three more associations are in the final stages of filing applications. One is run by Reliance Jio Infocomm and the other is a fintech-led consortium, So Hum Bharat, owned by Infibeam Avenue and Yes Bank.
"Business plans are not moving as fast as they should. A potential NUE applicant said:" There is opposition to large corporate entities, so the encouragement is to extend the deadline rather than give it to a large Indian consortium with Foreign backing".
The Reserve Bank of India (RBI) has yet to clarify the specific mandate of the proposed NUE groups. The broad scope expressed by the regulator includes the creation and operation of new payment systems that include ATM networks, point of sale (PoS) services, and Aadhaar-based payments and remittances
"The business scenarios we analyzed did not make sense, profitability was a major concern. A senior executive of an entity seeking to participate said the problem is that most of the advisers hired for NUE are ex-NPCI and they have not created models. scalable business, so we retired from the operation.
NPCI was established by the RBI and the Banking Association of India in 2008. It is based on a non-profit payment and settlement entity managed by the Swedish Central bank and owned and operated by banks. In the last decade, it has developed major railways for retail payments in the country, including UPI, Instant Payment System (IMPS), RuPay, and National Financial Switch (NFS). It is also credited with operating the Direct Benefit Transfer (DBT) structure that supports the Jan Dhan Yojana government. In the fiscal year 2020, NPCI generated revenue of Rs 1100 crore and a net surplus after tax of Rs 387 crore.
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