RBI to streamline online banking criteria for RRBs and regulate offline payment aggregators

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Giving a boost to digital banking when announcing its monetary policy meeting on Friday, the Reserve Bank of India (RBI) said it would streamline online banking guidelines for Regional Rural Banks (RRBs) and place offline payment aggregators under its responsibility.

Detailed guidelines for both developments will be released soon, RBI said.

Announcement of the Regional Rural Banks

Stressing the need to promote digital banking services in rural areas of India, RBI Governor Shaktikanta Das said the criteria for RRBs offering internet banking services to customers will be streamlined. RBI said the revised guidelines will be released soon.

RRBs are jointly owned by the central government, state government and sponsor banks. The ownership ratio for the central government is 50%, the state government 15% and the sponsor bank 35%.

RRBs provide various banking and financial services such as MGNREGA payroll remittance, debit and credit cards, Unified Payment Service (UPI), among others.

They were licensed to provide internet banking services in 2015. “In an effort to improve customer service and meet the demand for such services, it has been decided to allow RRBs to expand services internet banking to their customers,” the RBI said. in a version in 2015.

Currently, the criteria for RRBs to offer internet banking services are divided into two parts. One, where RRBs provide internet banking services with a view-only feature. Second, RRBs provide transactional facilities through internet banking. They are also required to obtain prior approval from RBI and meet certain criteria before offering internet banking services.

For example, all RRBs that offer Internet banking services must implement a Basic Banking Solution (CBS), among other criteria.

Some other criteria include RRBs having a minimum net worth of around Rs 100 crore or more as of March 31 of the previous financial year, having gross non-performing assets (NPA) below 7% and net NPA not exceeding 3 percent, a net profit in the previous financial year, and others.

According to a document released by NABARD, as of March 31, 2022, India has 43 RRBs sponsored by 12 regular commercial banks.

Murali Ramakrishnan, MD, South Indian Bank, said, “Digital adoption in India has far exceeded that of many other countries. The pandemic has also acted as a catalyst for accelerating the pace at which digitalization is happening in the country. The Unified Payment Interface (UPI) is the biggest achievement of the Indian Fintech system. This has made digitization important in the lives of customers, both in urban and rural settings. »

“The launch of Digital Banking Units (DBUs) in 75 districts across the country covering both assets and liabilities also aims to expand digital banking in predominantly rural areas. This will also ensure that most customers get priority in these units. RBI’s move to promote internet banking services in RRBs will further positively impact the people of rural India by adapting to the rapidly changing digital ecosystem,” added Ramakrishnan of the South Indian Bank.

Announcement of offline payment aggregators

RBI also announced that it will now regulate offline payment aggregators that handle face-to-face transactions.

Since March 2020, RBI has placed online payment aggregators under its regulatory responsibility. “Online payment (AP) aggregators have been subject to RBI regulations since March 2020. It is now proposed to extend these regulations to offline APs, which handle proximity/face-to-face transactions. This move is expected to bring regulatory synergy and convergence on data standards,” RBI said.

RBI will soon publish detailed guidelines for offline APs.

Balaji Jagannathan, co-founder and director of Paycorp.io, a payment solutions company, said, “RBI has now decided to treat online and offline payment aggregators (PAs) the same. This could mean that offline APs must obtain an AP license, demonstrating strong KYC and healthy net worth, as required by online APs.

“There could be restrictions on offline APs to also store customer card data. RBI may even implement other guidelines such as stricter adherence to transaction limits. In a nutshell, RBI wants bring similarities in online and offline AP processing for the overall benefit of consumers and the payments ecosystem,” added Jagannathan.

Muralidharan Srinivasan, Head of Payments, APMEA Region, FIS Inc. (Fidelity National Information Services), a US-based company, said in a statement: “RBI’s directive to subject offline payment aggregators to the regulation will strengthen discipline and standardize compliance across the ecosystem, ensuring adequate security and data protection as well as monitoring of MDR and other transaction fees. More importantly, it will improve consumer dispute resolution processes and bring a standardized digital payment experience.

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