The Reserve Bank of India (RBI) has set a net worth criteria of Rs 500 crore for an umbrella entity governing retail payments that will compete against the National Payments Corporation of India (NPCI).

The central bank released the framework for setting up umbrella entities to operate pan-India retail payments systems. It had invited applications from eligible companies by February 26, 2021.

A policy paper put out by the central bank in January 2019 said that though the NPCI has become an organisation which is key to the operations of many of the critical retail payment systems of the country, there is “concentration of many tasks”.

The NPCI, which offers services such as UPI, IMPS and BHIM, is an umbrella organisation for operating retail payments and settlement systems in India. It was formed under the initiative of the RBI and the Indian Banks’ Association (IBA), under the provisions of the Payment and Settlement Systems Act, 2007.

Companies with a net worth of over Rs 500 crore will be eligible to set up an umbrella entity which will be permitted to set up, manage and operate new payment systems in the retail space comprising ATMs, White Label PoS, Aadhaar-based payments and remittance services.

The umbrella entity will be permitted to operate clearing and settlement systems for banks and non-banks. It will identify and manage relevant risks such as settlement, credit, liquidity and operational; and preserve the integrity of the system.

One of the key condition is that entities applying as promoter or promoter group will be owned and controlled by resident Indian citizens.

Capital requirements under Fema will apply for foreign investments in the applicant.

RBI added that if there is any Foreign Direct Investment (FDI) or Foreign Portfolio Investment (FPI) in the applicant entity, it will fulfil, additionally, the capital requirements as applicable under the rules framed under FEMA.

The guidelines also elaborated on the 'fit and proper' requirements for promoters or promoter groups.

"No single promoter/promoter group shall have more than 40 per cent investment in the capital of the umbrella entity," the guidelines said.

The promoters or promoter groups should upfront demonstrate the capital contribution of not less than 10 per cent -- Rs 50 crore -- at the time of making application for setting up the umbrella entity. The balance capital will be secured at the time of commencement of business/operations.

It further said the promoter or promoter group shareholding can be diluted to a minimum of 25 per cent after 5 years of commencement of business of the umbrella entity.

However, a minimum net worth of Rs 300 crore should be maintained at all times, as per the guidelines.