Tag Archives: RBI

RBI opens Rupee Interest Rate Derivatives market to Non-Residents for hedging and trading in India

The Reserve Bank of India (“RBI”) on 27 March 2019, announced that a Non-Resident[1] shall be given access to the Rupee Interest Rate Derivative (“IRD”) market in India vide the notification of Non-resident Participation in Rupee Interest Rate Derivatives Market (Reserve Bank) Directions, 2019 (the “Directions”) with immediate effect which applies to Rupee IRD transactions undertaken on recognized stock exchanges, electronic trading platforms (“ETP”) and Over the Counter (“OTC”) markets.

Permissible activities under the Directions:

Under the Directions, a Non-Resident can undertake transactions in Rupee IRD markets for the following purposes:

1.Hedging their exposure to interest rate risk by using any permitted IRD product transacted on recognized stock exchanges, ETPs or OTC market, subject to the following condition

  • IRD transaction must conform to the provisions of Section 45(V) of the RBI Act, 1934 and FEMA, 1999, and any rules, regulations and directions issued thereunder;
  • Market-makers must ensure that the transactions by Non-Resident are being carried out for the purpose of hedging by calling for any relevant information from the Non-Resident, who will be obliged to provide the same

2. For purposes other than hedging of interest rate risk, i.e. Trading by;

  • Non-Residents other than individuals, for undertaking Overnight Indexed Swaps (“OIS”) transactions subject to condition of conducting it only through a market-maker in India by way of a back-to-back arrangement through a foreign counterpart of the market-maker in a back-to-back arrangement meaning that the Non-Resident shall undertake the transaction with a foreign counterpart of the market-maker and the foreign counterpart, in turn, immediately shall enter into an off-setting transaction with the market-maker in India. All rupee interest rate derivatives transactions, globally, of related entities of the market-maker must also be accounted for in the books of the market-maker.

OIS transactions by NRs for purposes other than hedging interest rate risk shall be subject to the overall limit as well. This shall be in the form of a Price Value of a Basis Point (“PVBP”) of all outstanding OIS positions undertaken by all Non-Residents which shall not exceed INR 3.50 billion. The PVBP of all outstanding OIS positions for any single Non-Resident shall not exceed 10% of the overall PVBP cap. The Clearing Corporation of India Ltd. (“CCIL”) shall publish methodology for calculation of PVBP, monitor and publish utilization of PVBP limit on a daily basis.

  • Foreign Portfolio Investors (“FPI”) collectively may also transact Interest Rate Future (”IRF”) up to INR 50 billion in terms of RBI’s circular titled “Separate limit of IRFs for FPIs” dated 01 March 2018.

Payments and Reporting:

All payments related to IRD transactions of a Non-Resident may be routed through a Rupee account or a vostro account. Market-makes shall also ensure that Non-Resident clients are from an FATF compliant country and that the clients comply with KYC requirements as prescribed under the RBI’s KYC Master Direction as amended from time to time. It is to be noted that this may required Non-Resident to acquire a Permanent Account Number (PAN) to quote in IRD transaction instruments.

All OTC rupee IRD transactions are to be reported by market-makers and ETPs to the trade repository of CCIL, clearly indicating whether trade is for hedging or other purposes. Trade details, including particulars of NR client for OIS transactions under the back-to-back arrangement is to be reported by market-makers to the trade repository of CCIL. Additionally, cross-border remittances arising out of transactions in Rupee IRD shall be reported by banks to RBI at monthly interval.

References:

[1] A ‘Non-Resident’ under the Directions means person resident outside India as defined in section 2(w) of Foreign Exchange Management Act, 1999.

2. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11512

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Draft Enabling Framework for Regulatory Sandbox

In July 2016 the Reserve Bank of India (RBI) had setup an inter-regulatory Working Group to look into and report on various aspects relating to fintech. One of the key recommendations of the Working Group was the introduction of an appropriate framework for a regulatory sandbox. Thus on 24th April 2019, the RBI has come out with a Draft Enabling Framework for Regulatory Sandbox (“Draft Framework”).

Before we proceed with the details regarding the Draft Framework it is important to understand the concept of a regulatory sandbox.  Regulatory sandbox (RS) refers to live testing of new products or services in a controlled/ tested regulatory environment for which the regulators may permit certain relaxation in the regulations only for the limited purpose of testing. The RS allows the entities to test their product in a controlled environment before a wider-scale launch. Thus the RS at its core is a formal regulatory programme for market participants to test new products, services, business models with customers in a live environment subject to certain safeguards and oversights.  Further, RBI in its Working Group Paper also discussed the concept of an ‘innovation hub’ which provides support, advice or guidance to regulated or unregulated firms in navigating the regulatory framework or identifying the legal issues.

Eligibility criteria of an applicant

The Draft Framework lays down the eligibility criteria for participating in the RS. The target applicants for entry in the RS are fintech firms which meet the prescribed conditions of a start-up by the Government. The focus of the RS is to encourage innovation where (a) there is an absence of regulations, (b) there is a need to temporarily ease the regulations for the proposed innovation, and (c) the proposed innovation shows promise of easing the delivery of financial services.

The RS shall begin the testing process with 10-12 selected entities through a comprehensive selection process which has been detailed under the ‘Fit and Proper criteria for selection of participants in the RS’. The entities should satisfy the following conditions: (a)  the entity should be a company incorporated and registered in India and should be “Start up” , (b) the entity should have a minimum net worth of Rs 50 lakhs as per its latest audited balance sheet, (c) the promoters/ directors of the entity should be fit and proper and a declaration should be made to that effect, (d) the conduct of the bank accounts as well as the entity’s promoters/directors should be satisfactory, (e) a satisfactory CIBIL or equivalent credit score of the promoters/directors of the entity is required, (f) applicant should showcase that their product/services and ready for deployment in the broader market, (g) entity should demonstrate arrangements to ensure compliance with regulations on consumer data protection and privacy, and (h) the entity should have adequate safeguards related to the IT system to ensure safety of data and records.

The fintech solution proposed by the applicant should highlight the existing gap in the financial system and demonstrate that there is a regulatory barrier that prevents the deployment of the product/service. Additionally, the applicant should clearly define the test scenarios and the expected outcomes from the sandbox experimentation and an acceptable exit and transition strategy in case the fintech driven solutions are discontinued or deployed on a broader scale after exiting the RS. To this effect, the applicant is required to share the result of the proof of concept/ testing of use cases including any relevant prior experiences before getting admission into RS for testing.

Design features of the RS

The RS may run a few cohorts i.e. end-to-end sandbox process, with a limited number of entities in each cohort testing their products in a stipulated time. The RS shall be based on different subjects focusing on areas such as financial inclusion, payments, digital KYC, etc. Though these cohorts may run for varying time period but it should ordinarily be completed within 6 months.

The innovative products/services which could be considered for testing under RS would include retail payments, money transfer services, market places lending, digital KYC, financial advisory services, smart contract, cybersecurity products, etc. On the other hand, the innovative technology which could be considered for testing under RS would include data analytics, API services, applications using block chain, AI and machine learning applications and mobile technology applications.

Regulatory requirements for RS applicant and exclusions from RS

The regulatory requirements which shall be mandatorily adhered to by the applicant are: (a) customer privacy and data protection, (b) security of transactions, (c) KYC/ AML/ CFT requirements, (d) secure storage of and access to payment data of stakeholders, and (e) statutory requirements.

However, an entity would not be suitable for RS if the proposed financial service is similar to a product/service/technology which already is being offered in India unless the applicant can show that either a different technology is gainfully applied or the same technology is being used in a more effective and efficient manner. Accordingly, the Draft Regulations have put together an indicative negative list of products/ services/ technology which may not be accepted for testing. The list includes businesses related to credit registries, credit information, crypto-currency, initial coin offerings and chain marketing services.

Extending or Exiting the RS

In case the sandbox entity requires an extension of the sandbox period it shall apply to the RBI within one (1) month before the expiration of the sandbox period. Further, RBI at its discretion can discontinue the RS testing for an entity if it does not achieve the intended purpose or if the entity is unable to comply with the relevant regulatory requirements.  The sandbox entity may exit from the RS on its own by informing the RBI one week in advance.

Boundary conditions, transparency, and consumer protection

A sandbox must have a well-defined space and duration for the proposed financial services to be launched and the boundary conditions for the RS shall include the start and end date of RS, target customer type, limit the number of customers involved, transaction ceiling, and cap on customer. Further, the RBI shall communicate the entire RS process including the launch, theme of the cohort, entry and exit criteria on its website to ensure transparency. And as stated earlier before discontinuing/ exiting from the RS, the sandbox entity shall ensure that it meets all the existing obligations towards its customers and entering into an RS does not limit the liability of the entity towards its customers.

Sandbox process and stages

The end to end sandbox process, including the test of the products/ services shall be overseen by the FinTech Unit (FTU) at RBI, and the stages involved in the RS are as follows:

  • Stage 1: Preliminary Screening (4 weeks) – FTU shall ensure that the applicant clearly understands the objectives and principles of the RS, and it is in this phase the application received by the FTU are evaluated and shortlisted who meet the eligibility criteria.
  • Stage 2: Testing Design (3 weeks) – In this phase which lasts for 3 weeks the FTU finalizes the test design through an iterative engagement with the applicant and shall identify the outcome metrics for evaluating the evidence of risk or benefits.
  • Stage 3: Application Assessment (3weeks) – In this phase the FTU vets the test design and proposes regulatory modifications if any.
  • Stage 4: Testing (12 weeks) – The testing may last for a maximum tenure for 12 weeks. In this phase, the FTU generates empirical evidence to assess the test conducted.
  • Stage 5: Evaluation (4 weeks) – The final evaluation of the outcome of testing the products/ services/ technology is confirmed in this phase by RBI. The FTU shall assess the outcome report and decide whether the product/service is viable and acceptable under RS.  

Statutory and legal issues

If the applicant is allowed by the FTU into the RS, the entity would be provided by appropriate regulatory support by RBI in the form of relaxation of specific regulatory requirements during the duration of the RS. However, RBI shall not bear any liability arising from the RS process and any liability arising from the experiment has to be borne by the entity alone. Further, the sandbox entity should ensure that on exiting from the RS or on the completion of the RS process, the sandbox entity should fully comply with all the relevant regulatory requirements.

Source:

1.https://m.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=920#A_2

2.Report of the Working Group on FinTech and Digital Banking- https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=892

Relaxations to FPIs and Companies under bankruptcy wrt ECB

Regulatory update: RBI’s Bi-Monthly Monetary Policy Statement grants important relaxations to FPIs and Companies under bankruptcy with respect to ECB

The Reserve Bank of India (RBI) on 7 February 2019 has issued its Sixth Bi-monthly Monetary Policy Statement (Monetary Policy Statement), for the current fiscal year 2018-19. The key relaxations announced for foreign investors are as follows:

  1. Relaxation to FPIs investing under the debt route:

Under the extant framework for FPI investment in corporate debt, the RBI’s A.P. (DIR Series) Circular No. 31 dated June 15, 2018 restricted an FPI from having more than 20% exposure of its total corporate bond portfolio, in the corporate debt market in a single corporate (including exposure to entities related to the corporate). Imposed with the aim of incentivizing FPIs to maintain a diverse portfolio of assets, existing FPIs were also given an exemption from this requirement till end of March 2019 to adjust their portfolios. However, the market feedback according to the RBI indicated that FPIs have been constrained by the earlier requirements, and relaxations were needed.

Accordingly, in order to encourage investment in the Indian corporate debt market, the RBI vide the Monetary Policy Statement, removed the abovementioned restriction and has declared that all FPIs shall henceforth again be permitted to invest any portion of its corporate bond portfolio in a single borrower entity. The Monetary Policy Statement indicates that RBI would issue a circular in this regard by mid-February 2019 to make it official.

The Monetary Policy Statement however did not provide any relaxation on the following key restrictions imposed vide the aforementioned A.P. (DIR Series) Circular No. 31 dated June 15, 2018:

  1. Investment by a single FPI or a group of related FPIs shall not exceed 50% of the issue size of a corporate bond; and
  2. At any point of time, a FPI’s investments in corporate / government bonds maturing within one year shall not exceed 20% of the FPI’s total portfolio in corporate / government bonds.
  1. Relaxation ECB framework norms on end-use restrictions for companies under bankruptcy:

Under the extant External Commercial Borrowing (ECB) framework, any borrowing proceeds from an ECB could not be utilized for repayment or for on-lending for repayment of domestic rupee loans. However, cognizant of the prospect that resolution applicants under Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code (IBC), 2016 might find it attractive to borrow abroad to repay the existing lenders, the RBI has decided to relax the end-use restrictions for resolution applicants under the CIRP.

Further under A.P. (DIR Series) Circular No. 18 also dated 7 February 2019 the resolution applicants, who are otherwise eligible borrowers, have been allowed to raise ECBs from recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment of Rupee term loans of the target company under the approval route.

Sources:

  1. Sixth Bi-monthly Monetary Policy Statement for the current fiscal year 2018-19: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=46237
  2. P. (DIR Series) Circular No. 18 date February 07, 2019: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11472&Mode=0

Authorisation of New Retail Payment Systems : RBI’s Policy Paper

Reserve Bank of India (“RBI”) vide its press release on January 21, 2019 has invited comments on the Policy Paper on Authorisation of New Retail Payment Systems (“Policy Paper”). Earlier in June 26, 2018 RBI had released a Statement on Developmental and Regulatory Policies which aimed to minimize the concentration risk in retail payments systems and foster innovation and competition in the retail payments market. With this objective in mind RBI has placed this Policy Paper in public domain, inviting comments till February 20, 2019.

Existing retail payment services and operators in India

RBI is the regulator for payment and settlements systems under the Payment and Settlement Systems Act, 2007 and it ensures that the payment systems operate in a secure and efficient manner with regard to banks as well as non-bank entities. Banks have been the traditional gateway to payment systems but with the demand for varied payment systems and technological changes, non-bank entities have been granted access to the payment systems. These non-bank entities have been competing with the banks by providing retail electronic payment services. As a result, RBI has been issuing guidelines for various payment systems and granting the non-bank entities to setup and operate payment systems. It is to be noted that RBI had granted permission to eighty- nine (89) non-bank entities to act as payment system operators.

Analysis of the current landscape w.r.t retail payment system operators

Though there are many payment systems such as card networks, Prepaid instrument issuers (PPIs), ATM networks, etc. there are only a handful of payment operators in India. As a result of which, there are concerns around concentration and competition and its impact on the current financial of the country. Therefore there are a number of issues which need attention. The issues for discussion are as follows:

  1. a single operator having multiple and varied retail payment systems versus diversification across multiple operators;
  2. payments systems managed by a single operator such as Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Aadhaar Enabled Payment System (AePS) ,etc. versus multiple systems with similar product features being offered by multiple operators;
  3. availability of a window for licensing operators of a payment system on-tap; and
  4. reviewing the criteria of licensing to foster innovation and competition and to broad base potential applicants.

RBI has classified the payment systems as follows:

Serial Number. Basis of Classification Particulars
1. Number of operators 1.    Single operator for a single or multiple retail payments systems

·         NPCI- National Financial Switch (NFS), IMPS, BHIM Aadhaar Pay, National Electronic Toll Collection (NETC), etc.

·         Empays-IMT

 

2.    Multiple operators for similar payment services- to name a few:

·         ATM networks- 5

·         Card Payment Networks- 5

·         Prepaid Payment Instrument (PPI) issuers- 48 non-banks and 60 banks

 

2. Type of payment services Classification on the payment service based on the end user as under:

1.    Fund transfer and merchant payments systems- IMPS, UPI, PPI, Aadhaar based payments, etc.

2.    Card based payments- Card networks, ATM networks

3.    Bulk and repetitive payments, utility payments- NACH, BBPS

4.    Toll collection- NETC

5.    MSME receivables’ financing- TReDs

NPCI has become pivotal to the operation of many critical retails payments systems in the country. By October 2018, NPCI was accounting for almost 48% of the retail electronic payment transactions (excluding paper) in volume to 15% of the value of the retail electronic payment transactions.

The advantages of having concentrated system operations with few entities are as follows: (a) leads to standardisation with uniform and tested payment systems; (b) less pressure on capital and infrastructure; and (c) a unity of approach by the regulators. Whereas the disadvantages of having a single operator are as follows: (a) absence of redundancy and fall-back arrangements may impact continued availability; (b) inadequate competition may lead to complacency with no upgradation and improvement in the product; and (c) increase of the prices at which the services are being offered with reduction in quality of service.

The Policy Paper also discusses a multi-pronged action for a more appropriate level of retail payment systems and operators.

The pros of having multiple entities which provide similar payment services would be to increase the competition. However, this may require additional investments, creation of a suitable infrastructure, and this may be achieved over phases. Also, the feature of adding inter-operability in the new payment systems would incur huge costs.

Open and keep-on-tap window for making applications

There can be an open and keep-on-tap window for making applications by all the payment systems in place. This window would permit the receipt of applications for all payment systems and would prescribe for a specific “point of arrival” metric which would allow the entities who are unable to achieve the desired capacity and scale to have a defined-time line exit.

Liberal entry norms

The Policy calls for a liberal entry norm which would require reviewing the entry point capital (net worth) requirement and an analysis of the capability potential of the entities. Finally the Policy also recommends that all payment systems should have a physical presence in the country, an impeccable track record, and shall conform to the best overall standards including those pertaining to customer service and efficiency.

The Policy also makes it clear that there should be an alignment of regulatory framework to encourage enhanced participation of both bank and non-bank entities.

Further, Annexure III of this Policy Paper lays down the authorisation criteria for non-bank payment system operators which discusses the review possibility of the financials in terms of the reduction or revision of the net worth for payment systems such as WLAOs, BBPOUs, and TReDS.

Source: https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/ANRPS21012019A8F5D4891BF84849837D7D611B7FFC58.PDF

Data Protection and the many facets of it: Inter-collegiate Essay Competition

NovoJuris Legal is proud to announce the Inter-collegiate Essay Competition on Data Protection and its various facets. 

Data Protection has taken very high importance not only in India but across the World. The Personal Data Protection Bill, 2018 (“Bill”) and the Data Protection Committee’s (“Committee”) Report (released on 27 July 2018) provides for the framework and the policymakers’ insight on protection of individual’s privacy and personal data in India. The Bill has set high expectations particularly after the European Union’s General Data Protection Regulation (“GDPR”) came into force on 25 May 2018. It is also essential to note the important judgments including the now famous “Aadhar case” of Justice Puttaswamy (Retd.) V. Union of India.

Reserve Bank of India (RBI) in April this year has mandated that all data generated by the payment systems in India, is to be stored in India. The Ministry of Health and Welfare has also published the draft legislation called Digital Information Security in Healthcare Act, to safeguard e-health records and patients’ privacy.

Thus, all these new rules/policies/regulations (collectively referred as “the Data Protection Framework”) indicate a very strong direction that the Government wishes to undertake on protection of data including but not limited to data localisation, which helps in enforcing data protection, nation’s security and protect its citizen’s data, better control on transmission of data outside the country and more.

Topics for the Essay Competition:

The following sub-themes have been identified as requiring academic consideration:

  1. General Data Protection Regulation in European Union has raised the bar on legislation on data protection across the world. Would this be beneficial or would it stunt technological growth and innovation?
  2. Is our Privacy safe under the Aadhar scheme? A critical analysis of change in the privacy law regime post Aadhar case in India.
  3. Implication and critical analysis of the Data (Privacy and Protection) Bill, 2017.
  4. Do we need a stronger consumer centric data protection law in India like the Customer Online Notification for Stopping Edge – Provider Network Transgressions (CONSENT Act), USA in the aftermath of the Facebook data breach incident?
  5. With all the industry specific regulator (RBI, TRAI, MHoW and etc.) providing various regulations, guidelines and draft policy notes with regards to Data Protection Framework in India, what do you think the outcome will be? Is India formalizing a uniform law for data protection?

Important Dates

▪ Submission Date – The essays must be submitted on or before 11:59 PM on 30 January 2019.

▪ Declaration of the Result on 31 March 2019.  – The winners of the competition shall be notified by email and by declaration of results of the competition on this website.

Details about the prizes, guidelines for submission and other details can be found here.  Intercollegiate-Data Privacy Essay-Competition-NovoJuris

 

Basic Cyber Security Framework for Primary (Urban) Cooperative Banks (UCBs)

The Reserve Bank of India (RBI) on October 19, 2018 issued a set of guidelines for Basic Cyber Security Framework for Primary (Urban) Cooperative Banks (UCBs). Such a framework was issued by the RBI as a measure to enhance security of the UCBs in light of the increasing number and impact of cyber security attacks on the financial sector including banks. [1]

  1. Board Approved Cyber Security Policy
  • All UCBs need to immediately put in place a Cyber Security policy, duly approved by their Board/Administrator, giving a framework and the strategy containing a suitable approach to check cyber threats depending on the level of complexity of business and acceptable levels of risk.
  • On completion of the process, confirmation of same within 3 months must be sent to the Department of Co-operative Bank Supervision.
  • The Cyber Security Policy should inter alia encapsulate the following concerns:
  • Preventing access of unauthorised software.
  • Network Management and Security.
  • Secure Configuration.
  • Anti-virus and Patch Management.
  • Secure mail and messaging systems.
  • The IT framework/framework must be reviewed periodically by the Board or its IT subcommittee in order to identify vulnerable areas and put in place a suitable cyber security system to address the issues after assessment.
  1. Cyber Crisis Management Plan
  • The Cyber Crisis Management plan, prepared by CERT-In (Computer Emergency Response Team – India maybe referred to by the UCBs for guidance.
  • UCBs should promptly detect any cyber intrusions (unauthorised entries) so as to respond/recover/contain impact of cyber-attacks, especially those offering services such as internet and mobile banking, RTGS/NEFT/SWIFT, credit and debit cards etc.
  1. Organizational Arrangements
  • UCBs should review the organisational arrangements so that the security concerns are brought to the notice of suitable/concerned officials to enable quick action.
  • UCBs should actively promote among their customers, vendors, service providers and other concerned parties an understanding of its cyber security objectives.
  • UCBs, as owners of customer sensitive data, should take appropriate steps in preserving the Confidentiality, Integrity and Availability of the same, irrespective of whether the data is stored/in transit within themselves or with the third party vendors; the confidentiality of such custodial information should not be compromised in any situation.
  • UCBs to put in place suitable systems and processes across the data/information lifecycle. UCBs may educate and create awareness among customers with regard to cyber security risks.
  1. Supervisory reporting framework
  • UCBs should report immediately all unusual cyber security incidents (whether they were successful or mere attempts) to Department of Co-operative Bank Supervision giving full details of the incident.
  • UCBs are advised to implement basic Cyber Security Controls and report the same to respective Regional Offices of Department of Co-operative Bank Supervision on or before March 31, 2019.

Source: http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11397&Mode=0

https://rbidocs.rbi.org.in/rdocs/content/pdfs/63NT19102018_A1.pdf

[1] http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11397&Mode=0.

Regulatory update: Prepaid Payment Instruments (PPIs) – Guidelines on Interoperability

The Reserve Bank of India (RBI) on October 16, 2018 issued a set of guidelines for interoperability of PPIs. The guidelines are issued under Section 18 read with Section 10(2) of the Payment and Settlements Act, 2007. PPI issuers who choose to adopt interoperability shall adhere to these guidelines along with the Master Direction[1].

  1. Common requirements for achieving interoperability for wallets and cards
    • Where the PPIs are issued in form of online wallets, interoperability shall be facilitated through UPI and where PPIs is issued through a card, the cards shall be affiliated to authorised card networks. Option of interoperability has also been provided to PPI issuers operating in segment of meal, gift and mass transit system (MTS).
    • The interoperability shall be facilitated to all KYC compliant PPI account and entire acceptance infrastructure.
    • Technical Requirement: While facilitating interoperability the PPI issuer shall comply and adhere to all requirements of respective card networks and UPI, including adherence to various standards, technical requirement specific to a payment system, certification, audit and etc.
    • Further the PPI issuers will have to comply with mechanism established for reconciliation, grievance redressal and consumer protection by UPI and specific card networks.
  2. Specific Requirements for achieving interoperability through card networks
    • Card networks are allowed to integrate PPI issuers on their network. Further the non-banking PPI issuers are allowed to join card networks as members or associate members.
    • Settlement: For the purpose of settlement, Non-banking PPI issuer may directly participate in the card network or through a sponsor bank arrangement while adhering to requirements of the specific card network which it is a member of.
    • Safety and Security
  3. Non-banking PPI issuers will be issuing interoperable cards for the first time and therefore they shall make sure that the cards have an EMV chip and are PIN compliant.
  4. Banks shall ensure that while issuing new PPIs and renewing the old PPIs, the cards shall have EMV and shall be PIN compliant.
  • If a PPI issuer in the meal segment intends to facilitate interoperability, it shall also issue EMV chip and PIN compliant cards, whereas it is not compulsory for PPI issuers in the gift cards and MTS segment to have EMV chip and PIN.
  1. Specific requirements for achieving interoperability through UPI
    • PPI issuers will operate as payment system providers (PSP) in the UPI network. National Payment Corporation of India (NPCI) will provide all the PPI issuers, including non-banking PPI issuers a platform for linking their respective PPI holders/users to the platform to facilitate interoperability. The platform issued will use UPI to provide such Interoperability.
    • The PPI issuers as PSPs are only allowed to integrate their PPI holders/users and shall not on board PPI holders/users of other PPI issuers or customers of banks.
    • Any interoperable transaction will be approved as per the credentials of an individual’s online wallet before the same transaction reaches UPI network.
    • Settlement: Non-banking PPI issuer can directly settle a payment though a sponsor bank. Non-banking PPI issuers shall adhere to the requirements of sponsor bank in the UPI network and shall also comply with requirements stipulated by NPCI.

Source: https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11142

[1] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11142