RBI Master Directions on Authorisation to Operate a Payment System: Detailed Overview

The Reserve Bank of India has brought multiple earlier circulars and guidelines on payment system authorisations under one consolidated framework titled Master Directions on Authorisation to operate a Payment System. These Directions, issued under Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007) (“PSS Act”), lay down a unified regime for entities that wish to set up and operate payment systems in India or are already doing so.

The Directions introduce:

  • An on-tap authorisation mechanism for new entrants
  • Clear eligibility norms, including minimum capital and “fit and proper” criteria
  • Perpetual validity of authorisation, linked to ongoing compliance
  • Restrictions on investments from FATF non-compliant jurisdictions
  • A formal framework for voluntary surrender of authorisation
  • A defined cooling-off period for entities whose applications/authorisations face adverse outcomes

Statutory Basis and Commencement

These Directions are grounded in the RBI’s powers relating to authorisation of payment systems under Chapter III of the PSS Act and are specifically issued under Section 10(2) read with Section 18 of that Act. They serve as the operative regulatory document for entities engaged in or proposing to engage in payment system operations in India.

Effective date

The Directions become operative from the date they are hosted on the RBI website. No separate notification date is required beyond that online placement.

Key Definitions Under the Directions

Core terms

For purposes of these Directions, some important expressions follow the meanings assigned in the parent statutes:

  • ‘Payment System’: Has the same meaning as in the PSS Act.
  • ‘Payment System Operator’ (PSO): Carries the meaning assigned to “System Participant” in clause (p) of Section 2(1) of the PSS Act.
  • ‘Company’: A company registered under Section 3 of the Companies Act, 1956 or the corresponding provision of the Companies Act, 2013.

The Directions also define group relationships and promoter concepts that are crucial for determining eligibility and control:

  • ‘Companies in the group’: This covers entities linked through relationships such as:

    • Subsidiary–parent (as per AS 21)
    • Joint venture (AS 27)
    • Associate (AS 23)
    • Promoter–promotee as per SEBI (Acquisition of Shares and Takeover) Regulations, 1997 for listed entities
    • Related party (AS 18)
    • Common brand name usage
    • Equity investment of 20% or more

  • ‘Promoter’: A person who, together with his relatives (as per Section 2(77) of the Companies Act, 2013 and relevant Rules), exercises effective control over the PSO through voting equity shareholding or other arrangements. “Effective control” may be established via shareholding, contractual arrangements, or any structure that enables control.

  • ‘Promoter Group’: Includes:

    • The promoter and his relatives (Section 2(77) of the Companies Act, 2013)
    • Where the promoter is a body corporate:
      • Its subsidiaries or holding company
      • Any body corporate holding 10% or more of the promoter’s equity share capital or vice versa
      • Any body corporate where a common group of persons hold 20% or more of equity in both that body corporate and the promoter
      • Joint ventures/Associates (as per Ind AS 28)
      • Related parties (as per Ind AS 24)
    • Where the promoter is an individual:
      • Any body corporate in which the promoter/relative/HUF/firm holds 10% or more equity
      • Any body corporate in which such a body corporate (described above) holds 10% or more equity
      • Any HUF or firm where the promoter and his immediate relatives collectively hold 10% or more
    • All persons named as promoters in Articles of Association of group companies
    • All persons whose shareholding is aggregated for disclosure as “shareholding of the promoter group” under SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018
    • Entities sharing a common brand name with entities falling within the specified corporate and individual promoter relations

Important carve-out: A financial institution, scheduled commercial bank, foreign institutional investor or mutual fund will not be categorised as part of the promoter group merely because it holds 10% or more equity in the promoter, unless such holding is strategic in nature.

Applicability of the Directions

Who needs authorisation?

Consistent with the PSS Act, no person is allowed to operate a payment system in India without a valid Authorisation from RBI. Consequently, these Directions govern:

  1. Any entity that wishes to obtain authorisation under the PSS Act to run a payment system; and
  2. Any entity already authorised under the PSS Act to operate a payment system.

On-tap authorisation

The RBI has moved away from restricted time-window approvals. Authorisation is now available on an on-tap basis, allowing eligible entities to apply at any time through the prescribed portal.

Eligibility Conditions and Procedural Requirements

Filing the application

  • An entity intending to function as a PSO must file an application in the format prescribed by RBI, exclusively through RBI’s online portal designated for this purpose.
  • Incomplete applications or those not filed in the specified format are liable to be returned without consideration.

Capital and net-worth norms

  • The minimum capital requirement is not uniform across all payment system types. It must be checked in the specific Guidelines/Directions issued for each payment system category. These are made available on the RBI website.
  • The Directions standardise the net-worth computation for authorisation purposes.