RBI To Rationalise Internet Banking Criteria of RRBs, Regulate Offline Payment Aggregators

Giving a push to digital banking in its monetary policy meeting announcement on Friday, the Reserve Bank of India (RBI) said it will rationalise internet banking guidelines for regional rural banks (RRBs) and will bring offline payment aggregators under its purview.

Detailed guidelines regarding both the developments will be issued soon, said RBI.

Regional Rural Banks Announcement

Highlighting that there is a need to promote digital banking in India’s rural areas, RBI Governor Shaktikanta Das said the criteria of RRBs offering internet banking facility to customers will be rationalised. RBI said the revised guidelines will be issued soon.

RRBs are jointly owned by the central government, state government and sponsor banks. The ratio of holding for central government is 50 per cent, state government 15 per cent and sponsor bank 35 per cent.

RRBs provide various banking and financial services like MGNREGA wages disbursal, debit and credit cards, Unified Payment Service (UPI), among others.

They were allowed to provide internet banking facility in 2015. “With a view to enhancing customer service and taking into account demand for such services, it has been decided to allow RRBs to extend the facility of internet banking to their customers,” said the RBI in a release in 2015.

At present, the criteria for offering internet banking by RRBs are divided into two parts. One, where RRBs are providing internet banking with a view-only facility. Two, where RRBs are providing transactional facility through internet banking. They are also required to get RBI’s prior approval and fulfil certain criteria before offering internet banking facility.

For instance, all RRBs who offer internet banking have to implement core banking solution (CBS), among other criteria.

Some other criteria include RRBs having a minimum net worth of about Rs 100 crore or more as on March 31 of the immediate preceding financial year, having gross non-performing assets (NPAs) of less than 7 per cent and net NPAs of not more than 3 per cent, a net profit in the immediate preceding financial year, and others.

According to a document published by NABARD, on March 31, 2022, India has 43 RRBs sponsored by 12 scheduled commercial banks.

Murali Ramakrishnan, MD, South Indian Bank, said, "The digital adoption in India has gone way ahead of that of many other nations. The pandemic has also acted as a catalyst for the increased pace at which the digitalisation is happening in the country. The Unified Payment Interface (UPI) is the biggest success story on the Indian Fintech system. This has made digitalisation important in the lives of customers both in Urban and Rural."

"The launching of Digital Banking Units (DBUs) in 75 districts across the country covering both asset and liability side is also aimed at expanding the digital banking in mainly rural areas. This will also ensure most of the customer gets priority at such units.  The move of RBI to promote internet banking in RRBs is further going to have a positive impact on the people of rural India in adopting to the fast changing digital ecosystem," added Ramakrishnan of South Indian Bank.

Offline Payment Aggregators Announcement

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

Since March 2020, RBI has brought online payment aggregators under its regulatory purview. “Online Payment Aggregators (PAs) have been brought under the purview of RBI regulations since March 2020. It is now proposed to extend these regulations to offline PAs, who handle proximity/face-to-face transactions. This measure is expected to bring in regulatory synergy and convergence on data standards,” said RBI.

RBI will soon publish detailed guidelines for offline PAs.

Balaji Jagannathan, co-founder and director, Paycorp.io, a payments solution company, said, “RBI has now decided to treat both online and offline payment aggregators (PAs) equally. This could mean that offline PAs need to obtain PA license, demonstrating strong KYC and healthy net worth as mandated for online PAs.

"There could be restriction on offline PAs to store customers card data as well. RBI may even implement other guidelines such as stricter adherence to transaction limits. In a nutshell RBI wishes to bring similarities in treatment of online and offline PAs 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 guideline to bring offline payment aggregators under the purview of regulations will further discipline and standardise the compliance across the ecosystem, ensuring adequate security and data protection as well as oversight on MDR and other transaction charges. More importantly this will improve consumers’ dispute resolution processes and bring about a normalised digital payment experience."