Thanks To NPCI 24X7, Your Salaries Can Now Be Credited Even On Sundays!

Thanks To NPCI 24X7, Your Salaries Can Now Be Credited Even On Sundays!

RBI announced that from 1st August, NPCI operated NACH payment system will be enabled to make transfer 24×7. Hence, soon payments and settlement systems will be functioning for 365 days a year, barring zero exceptions. Let’s see how that would function.

Crux of the Matter

India’s payment settlement system National Automated Clearing House (NACH), operated by NPCI, will now be available for 365 days a year.

Real Time Gross Settlement (RTGS) facility will now be functional on bank holidays as well. NACH is primarily used to make one-to-many payment transfers like salary, dividends, pension, etc.

Nations Which Avail Such Services
Few nations in the world, such as the UK, Sweden, Australia, Hong Kong, SA, South Korea, Singapore, and China avail such round the clock payment transfer services.

  • Founded in 2008, NPCI is currently governed by the Reserve bank of India and the ministry of finance. It has Dilip Asbe (IAS) as its MD and CEO. NPCI governs systems like RuPay and Aadhar enabled Payment system.

Why Are Mutual Fund Investors Pissed?

Why Are Mutual Fund Investors Pissed?

Mutual Fund investors are vexed at the NPCI as its newly adopted system resulted in the piling up of orders. As a result, investors missed out on potential gains in the post-budget market rally. Investors are even demanding compensation for the potential gains! Let’s find out what happened.

Crux of the Matter

The Hitch

  • National Payments Corporation of India (NPCI) upgraded its system on January 31.
  • Since then, issues with the implementation of Mutual Fund orders started popping up.
  • Money is deducted through the digital gateway but units ordered by MF investors are either received late or not received at all.

What’s The Issue?
Step A
With increasing volume requirements and industry demands, NPCI updated its National Automated Clearing House (NACH) infrastructure on Jan 31. The NACH mandate deducts money from the investor’s account & then transfers it to the MF Scheme.

Step B
The planned migration was not implemented successfully. The amount was deducted without the units getting transferred to the account.

Step C
The upgradation coincided with SEBI’s new Net Asset Value (NAV) rules from February 1. SEBI’s new rules for orders above ₹2 lakh allow for the allocation of assets only when the fund leaves the bank settlement account and hits the Asset Management Company’s (MF issuer) account.

Step D
Hence with the persisting glitch, approximately 5 – 7 lakh transactions have piled up at payment gateways. Moreover, Sensex and Nifty have gained about 9 – 10% since Union Budget, making Mutual Fund investors more restless.

Who Is Accountable?
Side I:
The Mutual Fund investors are seeking compensation from fund homes on lost income for not receiving unit allotments on time.
Side II:
The fund home CEOs claim that unit allocation was not possible since the Mutual Fund never received the money.

Parties Involved

  • Investor’s Financial Institution.
  • Mutual Fund & its Payment Gateway
  • NPCI

Status Quo
NPCI released a statement that it is working with fintech companies and banks to resolve the glitch in its upgraded clearing system.

  • The first modern investment funds were established in the Dutch Republic. In response to the financial crisis of 1772–1773, Amsterdam-based businessman Abraham van Ketwich formed a trust named Eendragt Maakt Magt (“unity creates strength”).
  • At the end of 2019, mutual fund assets worldwide were $54.9 trillion, according to the Investment Company Institute.
  • The Vanguard Group, Inc. is an American registered investment advisor based in Malvern, Pennsylvania with about $6.2 trillion in global assets under management, as of January 31, 2020. It is the largest provider of mutual funds in the world.

Privatization of Payments Space in India?

Privatization of Payments Space in India?

Recently, RBI allowed private companies to set up an “umbrella entity” like that of National Payments Corporation of India (NPCI) to manage retail payments space and settlement systems in India. Will NPCI, which controls 60% of all retail payments in India, lose monopoly due to the privatization of payments space in India?

Crux of the Matter

What Is NPCI?
National Payments Corporation of India manages retail payments and settlement systems in India. It is a ‘not-for-profit’ entity owned by a consortium of leading public and private sector banks. The following are the core banks of the consortium managing NPCI: SBI, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank, and HSBC.

Moreover, it maintains digital payment channels such as Unified Payment Interface (UPI), National Automated Clearing House (NACH), National Financial Switch (NFS), IMPS, Bharat Bill Payments, FASTag, etc.

RBI’s Announcement
RBI has allowed privatization of the payments management space in India. It will allow private players to set up an NPCI-like umbrella company. They can be ‘for-profit’ entities. Companies are required to apply before February 2021. Approved entities will be given powers similar to that of NPCI.

Moreover, FDI will also be allowed with additional scrutiny. Apart from foreign fintech firms, domestic firms like Reliance, Paytm, NSE, BSE, have expressed their interest.

Private players will be allowed to set up, manage and operate new payment systems in the retail space, and operate clearing and settlement systems. They can also participate in RBI’s payment settlement and clearing systems. “Interaction and interoperability” with systems operated by NPCI will also be allowed.

Criteria To Set Up Such An Entity

  • The entity cannot have a single promoter with more than 40% investment.
  • Promoters have to reduce their share to 25% in the first five years of operation.
  • Entity needs to have a minimum paid-up capital of ₹500 crores.
  • 10% or ₹50 crores of the paid-up capital to be paid at the time of application.
  • Entity must maintain minimum net worth of ₹300 crores at all times.
  • Dilip Asbe is the current managing director and chief executive officer of the NPCI. The NPCI was incorporated in December 2008 and the Certificate of Commencement of Business was issued in April 2009.
  • NPCI International Payments Limited is a separate subsidiary to take NPCI’s product to the global market. Internationalization of RuPay and Unified Payment Interface (UPI) is the primary focus of the NPCI International Payments Limited.
  • The NPCI won Policy Change Agent of the Year 2018 by Economics Times. HDFC was awarded the Company of the Year award at the ceremony too.