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New M&A Norms for Payment System Operators

Payment and settlement systems are essential for the smooth functioning of financial markets, individual remittances, financial inclusion and growth of the economy as a whole. For this reason, central banks across the globe take a keen interest in their safe and efficient functioning. Likewise, the Reserve Bank of India (“RBI“), sets the necessary regulatory framework, to ensure that different types of payment systems operate in a safe, secure and efficient manner to meet the needs of varied segments of society. The RBI in terms of the powers vested with it by the Payment and Settlement Systems Act, 2007 regulates payment systems as well as payment system operators (“PSOs“). Recently, the RBI has issued a notification dated July 4, 2022 (“Notification“)1 that requires all non-bank PSOs to procure prior approval of the RBI for:

  • any takeover/ acquisition of control of a non-bank PSO, which may or may not result in change of management; and
  • a sale/ transfer of payment activity to an entity not authorised for undertaking similar activity.

We would like to highlight that prior to this Notification, the erstwhile rules and regulations only required PSOs to provide the RBI with an intimation within 15 days of completion of a takeover or acquisition that resulted in a change of control. The term ‘control’ as used in the Notification, will have the same meaning as assigned to it under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Implications of the Notification on the PSOs 

1. Prior RBI approval is required in the following cases:

(i) Takeover / Acquisition of control, which may or may not result in change of management
An application is to be submitted by the transferor non-bank PSO to Department of Payment and Settlement Systems (“DPSS”)along with the following documents –

(a) Information about the proposed directors; and
(b) Complete details about the new shareholders.

(ii) Sale / Transfer of payment activity to an entity not authorised for undertaking similar activity

(a) The seller/transferor non-bank PSO should apply to DPSS for obtaining prior approval.
(b) The buyer/transferee entity should apply for authorisation in Form A as prescribed under the Payment and Settlement Systems Regulations, 2008 along with the requisite application fee. This shall be considered as a new authorisation and the procedure specified in the guidelines for respective payment activity will be applicable.
(c) If the acquiring entity is a bank, it has to apply to DPSS for approval.
(d) The sale or transfer can be proceeded with after obtaining Certificate of Authorisation (CoA) or approval.
(e) The buyer / transferee bank / non-bank will be liable for complying with any regulatory or supervisory action taken by the RBI for periods prior to the sale/transfer.

2. After receiving complete details from both the entities, the RBI will endeavour to respond to any such applications within 45 calendar days.

3. Prior public notice

(i) After obtaining approval from the RBI, a public notice of at least 15 calendar days needs to be given before effecting the changes, either separately by the authorised non-bank PSO and the buyer/acquirer bank/non-bank, or jointly by them. The intention and reasons for such changes, particulars of the entities concerned, etc. shall be indicated in the notice. The notice should be published in at least one leading national and in one leading local vernacular newspaper (place of the registered office of the respective entities is to be covered).

(ii) The seller/transferor non-bank PSO also needs to inform all stakeholders (agents, bankers, customers, merchants, etc.) of the changes, at least 15 calendar days before effecting the same.

4. The authorised non-bank PSO has to inform DPSS within 15 calendar days in the following cases:

(i) Change in management/directors with complete details, including ‘Declaration and Undertaking’ by each of the new directors. RBI will examine the fit and proper status of the management/directors, and may place suitable restrictions if required.

(ii) Sale/Transfer of payment activity to an entity authorised by RBI for undertaking similar activity. The entities are required to issue prior public notice and the seller/transferor non-bank PSO is also required to inform all stakeholders at least 15 calendar days before the actual sale/transfer.

5. The Notification also provides details that need to be submitted along with the application for approval from RBI in case of change in directors as well as change in shareholding.

PSOs can be bifurcated into different categories such as PPI issuers, Cross-border Money Transfer Service Scheme operators, White Label ATM (WLA) operators, Trade Receivables Discounting System (TReDS) platform operators, ATM networks, Instant Money Transfer Service providers, Card Payment Networks and Bharat Bill Payment Operating Units (BBPOUs). This Notification will affect all such players including potential payment aggregators who have recently come under the RBI scanner and await the RBI decision on their applications for licenses. As can be seen from the stipulations discussed above, the Notification seeks to impose onerous obligations on PSOs and in light of the same it would be helpful to seek further clarity from the RBI on the varied subtleties of this Notification and the approval process.


1 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12348&Mode=0#F1

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