1 Legal and enforcement framework
1.1 In broad terms, which legislative and regulatory provisions govern the fintech space in your jurisdiction?
Several laws govern various aspects of the fintech industry in India, depending on the nature of the activities carried out by the relevant entity. The major sources of regulation of the fintech space in India include the following:
- Payment and Settlement Systems Act, 2007: This is the principal statute governing ‘payment systems’, defined as systems that enable payments to be effected between payer and beneficiary. The definition:
- specifically includes credit cards, debit cards, smart cards, money transfers and other similar operations; and
- specifically excludes stock exchanges.
Under the Payment and Settlement Systems Act, all payment systems require the approval of the Reserve Bank of India (RBI), India’s central bank and regulator. The Payment and Settlement Systems Act also imposes obligations on payment system providers and allows the RBI to frame additional directions and guidelines which payment systems are bound to comply with.
- RBI Act, 1934: The RBI Act contains provisions on the governance of non-banking financial companies (NBFCs), defined as non-banks that carry out activities including providing loans and insurance and acquiring securities. NBFCs must:
- register with the RBI;
- maintain a net owned fund of at least INR 2.5 million or such amount as is prescribed by the RBI; and
- maintain a reserve fund in which at least 20% of the profits of the NBFC are deposited on an annual basis.
The RBI, by way of notifications, has amended the net-owned fund requirement for NBFCs. Most categories of NBFCs must maintain a net owned fund of at least INR 100 million. Certain categories of NBFCs also have higher or lower net-owned fund requirements as prescribed by the RBI.
The RBI Act grants the RBI the power to issue directions/policies applicable to NBFCs regarding a number of specified topics.
- Banking Regulation Act, 1949: This act governs aspects of running a banking business in India. It:
- prescribes various requirements and obligations for entities wishing to open and operate a bank in India;
- grants the RBI multifaceted powers for governance, including powers over managerial control and supersession of the boards of directors of banking companies; and
- prescribes the procedures for the winding up of banking businesses.
