Banking Article, Banking Finance 2022, Banking Finance January 2022

New Umbrella Entity – A GAME CHANGER

NUEs will be a non-profit entity that will set-up, manage and operate new payment systems, especially in the retail space such as ATMs, white-label PoSAadhaar-based payments and remittance services.

The Reserve Bank of India had invited applications to set up the NUE in August last year, setting February 26, 2021, as the last date for applications. RBI guidelines mandate that applicants have at least three years of experience in the payments space, and a minimum paid-up capital of Rs 500 crore to be eligible to apply. The new umbrella entity will be entitled to set up, manage and operate new payment systems in the retail space including ATMs, PoS, Aadhaar-based payments and remittance services. The NUE is expected to develop systems that able to interact and be interoperable to the extent possible with the existing systems operated by NPCI.

Unlike NPCI, the NUE can be a for-profit entity. No single promoter is allowed to have more than 40 percent investment in the capital of the NUE, as per RBI guidelines. The promoter shareholding can be diluted to a minimum of 25 percent after five years of the commencement of business of the umbrella entity. The NUE would be required to maintain a net-worth of Rs 300 crore at all times.

Digital transactions have doubled in the last two years, faster than any major country outside China. Reports suggest India’s digital transactions may reach $2 trillion by 2023, presenting a huge opportunity for players.

Currently, all digital transactions are processed by the National Payments Corporation of India, a non-profit, umbrella organisation backed by 54 banks.

These include public sector banks, private banks, foreign banks, co-op banks, and regional rural banks. As of November 2020, the top shareholders of NPCI included Union Bank of India with 9.15 percent, Bank of Baroda with 9.15 percent, PNB 9.15 percent, Canara Bank 8.14 percent, SBI 7.12 percent, Bank of India 7.12 percent, ICICI Bank 7.12 percent, HDFC Bank 7.12 percent, HSBC Ltd 7.12 percent and Citibank with 7.12 percent stake.

As of February 2021, Its Unified Payments Interface (UPI) handled 2,292.90 million transactions, worth Rs 4, 25,062.76 crore. It handled about half of India’s nearly retail online transactions, which are expected to double this year. To address the “risk concentration” of only one platform and offer consumers more options, RBI invited private companies to bid for a license to set up a new platform.

Let’s see the eligibility criteria for applying to be a NUE?

Any promoter or group who has three years of experience in the payment ecosystem, as an operator, service provider or technology service provider can apply for NUE. Also, any entity holding more than 25% of the paid-up capital of the NUE shall be deemed to be a promoter. If it’s a foreign investor, he should comply with the FDI policy and guidelines of GOI and should also follow DIPP and FEMA policies. The applicant needs to follow corporate governance norms and should take RBI’s approval for the appointments of board members.

Conditions stipulated to be a NUE

The first and foremost condition is, the applicant should be Fit and Proper. RBI has clarified that the applicant entity and promoter should be fit and proper and should have a track record of financial integrity, good reputation and character, and honesty. Such a person should not be convicted by a court for any economic offense. Also, the applicant should have been part of any offense under RBI, such as, declared insolvents and not discharged and financially not sound.

Capital Requirements

The entity applying for NUE shall have a minimum paid-up capital of Rs.500 crore. The capital allocation should be done for managing risks, invest in technological infrastructure, for business operations. RBI has also disallowed from any single promoter or group to hold more than 40% investment in the capital of the NUE. RBI wants the promoters to demonstrate not less than 10% i.e. Rs.50 crore, capital contribution at the time of making an application for setting up the NUE. RBI has allowed the promoter or promoter group shareholding to dilute minimum of 25% after 5 years of the commencement of the business of the NUE. A minimum net worth of Rs.300 crore shall be maintained at all times.

Understanding the working of NUE

NUE will set up, manage and operate new payment systems especially in the retail space comprising of but not limited to ATMs, White Label, PoS and Aadhaar based payments, and remittance services, develop new payment methods, standards and technologies in the country and internationally. NUE should take care of developmental objectives like enhancement of awareness about the payment systems. NUE should operate in clearing and settlement systems, identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the systems. NUE can carry on any other business as suitable to further strengthen the retail payments ecosystem in the country.

Functions Expected through NUE

  • NUEs will develop new payment methods, standards and technologies.
  • These will operate clearing and settlement systems, identify and manage relevant risks such as settlement, credit, liquidity and operation and preserve the integrity of the system.
  • These will monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system and the economy in general.

Need for NUEs:

  • Limitations of NPCI: Currently, the umbrella entity for providing retail payments system is NPCI, which is a non-profit entity, owned by banks.
    • NPCI operates settlement systems such as UPIAEPSRuPayFastag, etc.
    • Players in the payments space have indicated the various pitfalls of NPCI being the only entity managing all of retail payments systems in India.
  • To Increase Competitiveness: RBI’s plan to allow other organizations to set up umbrella entities for payments systems aims to expand the competitive landscape in this area.
    • Players planning to establish these NUE aim to get an even bigger share in the digital payments sector.

Guidelines to be followed for NUEs:

  • Owned and Controlled by Residents: The promoter or the promoter group for the NUE should be ‘owned and controlled by residents’ with 3 years’ experience in the payments ecosystem.
    • The shareholding pattern should be diversified. Any entity holding more than 25% of the paid-up capital of the NUE will be deemed to be a promoter.
  • Capital: The umbrella entity shall have a minimum paid-up capital of Rs. 500 crore.
    • No single promoter or promoter group should have more than 40% investment in the capital of the entity.
    • A minimum net worth of Rs. 300 crore should be maintained at all times.
  • Governance Structure: The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.
    • The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.
  • Foreign Investment: Allowed in NUEs as long as they comply with the existing guidelines.


The Reserve Bank of India’s move to allow new umbrella entities (NUEs) for operating pan-India retail payments systems has put pressure on the National Payments Corporation of India (NPCI) to continue its innovation in payments system, options for the customers, more power to the customers while doing the digital payments. With NUE going to be functional the innovation level by implementing the latest technologies such as AI, Block Chains, RPA etc are going to be developed by the NUE and in this way more innovative payment options are going to be brought out which will project India as a pioneer in the payments system just like how our IMPS technology is very well portrayed around the world.

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