Since these entities will be bestowed with public money, RBI needs to check the fit-and-proper criteria before handing out licences: R Gandhi
Reserve Bank of India (RBI) deputy governor R Gandhi on Monday said granting licences to payment service providers cannot be a tick-box exercise.
Since these entities will be bestowed with public money, RBI needs to check the fit-and-proper criteria before handing out licences, he said.
"Some people ask why a non-bank cannot be allowed to keep accounts. They quote the success of mPesa, a non-bank entity in Kenya in ushering payment revolution in that country. Many mobile phone companies do feel they can offer 'account' based payment service. Our answer is simple. If you maintain an account, then you are a bank and you need a banking licence. When you keep the money of the public in account, you are a financial entity taking deposits and you must be public trustworthy and so be regulated as a deposit taking financial entity."
On August 19, 2015, RBI gave licences for 11 entities to set up payment banks, of which three Tech Mahindra, Cholamandalam Finance and Dilip Sanghvi –IDFC-Telenor which had jointly applied for the license pulled out of the race.
While Airtel Payment Bank has started operations, about seven others, including the RIL-SBI joint venture, are expected to launch services shortly.
However, Gandhi said that the central bank cannot allow free entry and that the licences need to be regulated.
"Such a free entry may not be appropriate for payment industry. We must remember that the payment service provider is entrusted with money, and therefore fit and proper criterion is of utmost importance and consequently, free entry based on tick-box exercise will be a risky phenomenon," Gandhi said.
"There is an implied suggestion that the payment sector needs to be freed of licensing mechanism and once a set of criteria are fixed, any number of entities meeting those criteria should be allowed to function. We differ from this idea," he said.
According to him, there is a misconception that non-bank entities are being discriminated as compared to the banking entities in the payment system arena. "We have been opening up the space and allowing entry to non-bank entities. At the origination, in between the originating bank and destination bank and at the receiving end, there is no restriction for a non-bank entity to be present," said the deputy governor.
Many mobile phone companies do feel they can offer account-based payment service, he said.
"If you maintain a bank account, then you are a bank and you need a banking licence. When you keep the money of the public in account, you are a financial entity taking deposits and you must be public trustworthy and so be regulated as a deposit taking financial entity," Gandhi said justifying the RBI's stand on not allowing non-bank entities to keep bank accounts.
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