The Reserve Bank of India (RBI) Governor, Shaktikanta Das, on February 06, 2020, read the announcement titled, “Guidelines on Merchant Acquiring Business – Regional Rural Banks (RRBs),” wherein, under the Statement on Developmental and Regulatory Policies (Feb. 06, 2020), its decision to permit RRBs to act as merchant acquiring banks via the usage of Aadhaar Pay – BHIM app and POS (Point Of Sale) terminals – was made official.
Put it simply, the RBI has now allowed RRBs to install the POS devices of their own – given that they have consent from the RBI of undertaking mobile banking. Apart from this, it’s also made mandatory by the RBI that the IT systems and Core banking solutions of the RRBs be subjected to an IS (Information Systems) Audit and have deployed secured systems.
The rationale communicated by the Governor revolves around giving an impetus to digital banking and permitting RRBs to be able to offer cost-effective and user-friendly alternatives to their customers. Bringing RRBs on a level-playing field with other commercial banks, RRBs will be subjected to offer the warranted IT infrastructure to enable seamless processes, secured transactions and facilitate timely customer grievance redressal.
It has also been clarified that the RRBs will also be required to make sure the establishment of a board-approved policy for merchant acquisition for card transactions. It has also been specified by the RBI that RRBs intending to deploy POS should be having net-worth of Rs. 100 crore or more as on March 31 of the preceding financial year, plus at least a CRAR at 9% and NET NPA lower than 5%.
The compliance requirements for RRBs also mention due compliance with instructions and guidelines on Merchant Acquisition for card transactions and POS, as issued from time-to-time by the Department of Payment and Settlement Systems, RBI. The exercise forms a crucial part of the initiative taken by the RBI to better credit flows to needy sectors; strengthen monetary transmission, regulation and supervision; expanding and deepening financial markets; and improving payment and settlement systems.
Also, on the digital payments front, under its Statement on Developmental and Regulatory Policies, the RBI has also announced scheduling in April 2020 the release of its framework to establish Self-Regulatory Organisation (SRO) for Digital Payment System. This is owing to the considerable growth trajectory exhibited by the entities in the payment ecosystem warranting a mechanism for orderly operations of the entities in the payment system, and also to foster fine practices on security, consumer protection, pricing, etc.
The RBI specifies that the SRO will act as a 2-way communication channel among the players and the regulator/supervisor. Lastly, again on the grounds of the rapid development of payment systems in India, the RBI has communicated its plan to develop, and from time-to-time, publish a composite “Digital Payments Index” (DPI) to record the degree of digitisation of payments in an effective manner. Multiple parameters exist on which the DPI would be based to accurately mirror the penetration and deepening of different digital payment modes starting July 2020.