NPCI Rival - FinMin not happy about SBI-HDFC-BOB Bank's NUE plan to rival NPCI

NPCI Rival – FinMin not happy about SBI-HDFC-BOB Bank’s NUE plan to rival NPCI:

The government doesn’t want public sector banks, which SBI and Bank of Baroda are, to compete against RuPay and UPI that are run by the National Payments Corporation of India (NPCI).

India’s three largest retail banks—SBI, HDFC Bank and Bank of Baroda—have been planning to form a consortium that would rival the National Payments Corporation of India (NPCI) for a few months now. The three banks are also a part of the consortium that is NPCI.

See the problem here ?

It’s no surprise the finance ministry isn’t a big fan of the idea, especially given the involvement of two large public sector banks. It has raised concerns about a conflict of interest and is worried the proposed entity could turn into a monopoly and damage flagship NPCI projects such as UPI and RuPay Card.

Now, it turns out, the government isn’t too keen on this idea. Yesterday, three sources told ET that the finance ministry has raised concerns about the tie-up.

Why? The ministry doesn’t want state-owned banks to compete against flagship government projects such as RuPay and UPI, which are run by NPCI, a source said.

Conflict of interest concerns: NPCI is made up of a consortium of banks and licensed fintech companies, and regulated by RBI. SBI, HDFC Bank and Bank of Baroda have a combined 24.2% stake in NPCI. The three banks process more than half of all retail digital transactions — including those by their own customers and on platforms such as UPI.

Officials in the finance ministry thus see the proposed new payments entity as a “major competition risk”.

Monopoly concerns: The ministry is also concerned that the new entity could turn into a monopoly, given that SBI, HDFC Bank and BoB are India’s three largest retail banks.

RBI’s NUE framework: The three banks decided to look into setting up a consortium after the Reserve Bank of India finalised its framework for ‘new umbrella entities’ (NUE) to develop and push technologies for retail payments last August. RBI said its aim in doing so was to reduce the risk that comes from having one dominant payments platform, as UPI has proved to be.

To ensure that NPCI remained relevant, RBI said that any retail payments platform developed by NUEs should be interoperable with NPCI’s existing platforms.