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The Reserve Bank of India (RBI) has issued a new directive aimed at increasing supervision of merger and acquisition (M&A) activity among non-bank payment system operators (PSOs).
In the directive, which was issued on July 4, the RBI spelled out the types of deals for which prior approval must now be sought.
These include the takeover or acquisition of a non-bank PSO, or the sale or transfer of the payment system activity of a non-bank PSO.
Prior approval must be sought whether or not there will be a change of management following the takeover or acquisition.
Additionally, non-bank PSOs must inform the RBI within 15 calendar days of a change of management or directors.
The same applies in the case of a sale or transfer of payment system activity to an entity not authorised for such purposes.
The directive, which takes effect immediately, was issued under Section 10(2), read with Section 18, of the Payment and Settlement Systems Act 2007.
Application process
To obtain prior approval from the RBI, the transferor non-bank PSO must submit an application to the RBI’s Central Office at the Department of Payment and Settlement Systems (DPSS).
The application must include details about the proposed directors of the non-bank PSO, and details about the new shareholders of the company.
In the case of sales or transfers of payment system activity to an entity not authorised for such purposes, the seller or transferor non-bank PSO must apply for approval from the same office as above.
In this case, if the approval is granted, it is akin to receiving authorisation for the payment system activities in question.
If the acquiring entity is a bank, the same rules apply. In either case, the deal must only go ahead once a Certificate of Authorisation (CoA) has been issued by the RBI.
The RBI said it will endeavour to respond to all applications within 45 calendar days of receipt.
Once approval has been granted by the RBI, the transacting parties must notify the public — either separately or jointly — at least 15 calendar days before the deal becomes effective.
The public notice must communicate the aims and intentions of the deal, and must be published in at least one national newspaper and one local-language newspaper (corresponding to the registered offices of the entities involved).
The seller or transferor non-bank PSO must also inform its stakeholders, such as agents, bankers, merchants and customers, of the same at least 15 days before the deal becomes effective.
What changes in directorship or shareholding are important?
In cases where there will be a change in either directors or shareholders, the RBI will examine the “fit and proper status” of those involved.
Directors must provide details of possible conflicts of interest, such as relatives who are connected to the new company, interests in other companies or defaults from within the last five years.
For shareholders, if a new non-bank PSO is to be created, shareholders must provide the RBI with details on how they will be associated with the new company, and whether this will lead to any changes in any payment system.
Shareholders must also provide source of funds information, including a breakdown of whether they will be investing their own funds or borrowing from bank or non-bank sources.
If foreign shareholders will be present in the new company, they must comply with a separate circular from June 2021 on Investment in Entities from FATF Non-Compliant Jurisdictions.
