India: RBI Proposes Higher Net Worth, KYC And Other Changes For Issuers Of Prepaid Payment Instruments

Last Updated: 31 August 2017
Article by Seema Jhingan, Neha Yadav and Sudipto Mitra

The Indian e-commerce boom coupled with the recent demonetization drive by the Indian Government has put the online payment systems to the forefront as a means of easy e-payments. While cash continues to be the predominant and most preferred mode of payment, the prepaid payment instruments ("PPIs") such as e-wallets etc. are growing in popularity. As a consequence, the Reserve Bank of India has re-assessed the extant regulations as applicable to the PPIs to make the non-cash payment modes safe, secure and KYC compliant for better risk mitigation and customer protection.

Accordingly, RBI had earlier this year on March 20, 2017, issued draft master directions on 'All Prepaid Payment Instrument Issuers, System Providers, System Participants and all prospective Prepaid Payment Instrument Issuers', ("Draft Master Directions"), for public comments, by incorporating all instructions/guidelines issued so far along with certain significant amendments to the extant regulations.

Sharp Increase in Minimum Net Worth Requirement.

The Draft Master Directions have proposed a sharp increase in the minimum positive net worth threshold to be maintained by PPI issuers. Under the extant regulations, all entities seeking authorization from RBI to operate as a PPI issuer are required to have a minimum capital threshold of Rs. 5 Crores and minimum positive net worth of Rs.1 Crore at all the times. However, the Draft Master Directions propose to do away with the minimum capital requirement and instead all entities seeking approval of RBI to operate a payment system of PPI are required to have and maintain a minimum positive net worth1 of Rs. 25 Crores as per the last audited balance sheet.

Transition Period Allowed to Existing Entities.

The Draft Master Directions allow the existing PPI issuers time to comply with the enhanced capital requirements by September 30, 2020 for the financial position as on March 31, 2020, failing which they will not be permitted to carry on this business beyond December 31, 2020. Till such time, the existing PPI issuers shall continue to maintain the capital requirements under which they were authorized.

Other Changes,

RBI has also sought to impose more stringent KYC and customer due diligence requirements on PPI issuers. The Draft Master Directions also propose changes in relation to customer service and protection related aspects such as safety and security of the transactions as also the risk mitigation measures, complaint redressal mechanism, forfeiture of unutilised balances, fraud monitoring and reporting requirements, etc. so as to inter alia prevent suspicious and fraudulent transactions.   

Temporary Suspension of Fresh Approvals and Change in Control restrictions.

Prior approval of the RBI is required to be obtained for authorization and operation of specified categories of PPIs under the Payment and Settlement Systems Act, 2007 ("PSS Act") and the corresponding rules, regulations, guidelines issued by RBI from time to time. RBI, in its press release dated September 2, 2016 had specified that it is undertaking a comprehensive review of the guidelines and framework for PPI issuance, and in this background, it has decided to temporarily suspend receipt of fresh applications from banks and non-banks for grant of authorization to operate a payment system for PPIs under PSS Act till February 28, 2017. Significantly, RBI in its press release had stated that during this period, change in ownership/shareholding of an existing authorized entity would be permitted only where required due to court orders, mergers or amalgamations and/or regulatory exigencies. Applications already received by RBI were to be processed as per the extant guidelines.

As a consequence, till the date of release of final guidelines, not only the grant of fresh authorizations to operate a payment system for PPI will remain suspended but restrictions are also placed on any change in ownership/shareholding of an existing authorized entity issuing PPIs. Further, a similar restriction is also provided under the Draft Master Directions, as per which any takeover or acquisition of control of non-bank entity, which may or may not result in change of management; or any change in the management resulting in change in more than 30% of the directors, excluding independent directors would require prior approval for RBI.

Concluding Remarks:

The proposed significant increase in the net worth requirement appears to be a move by RBI to ensure that PPIs are issued by entities with significant resources to ensure safety and security of these instruments and compliance with the increased KYC compliance requirements. However, this move has created a stir in the financial milieu of many PPI entities. Further, the implementation of the other proposed changes may also require issuing entities to overhaul their customer on-boarding, KYC and compliance, and reporting processes. Compliance with these Draft Master Directions, when notified may therefore be more cumbersome and challenging for the PPI issuing entities but more safe and secure for the customers.

Footnotes

1 In terms of the Draft Master Directions, net worth would consist of "paid up equity capital, preference shares which are compulsorily convertible into equity capital, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets' adjusted for 'accumulated loss balance, book value of intangible assets and Deferred Revenue Expenditure, if any."

Disclaimer: LexCounsel provides this e-update on a complimentary basis solely for informational purposes. It is not intended to constitute, and should not be taken as, legal advice, or a communication intended to solicit or establish any attorney-client relationship between LexCounsel and the reader(s). LexCounsel shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained in this e-newsletter. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Seema Jhingan
Neha Yadav
Sudipto Mitra
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.