India’s capital markets regulator may open one more avenue for individual investors to pay for shares offered in initial public offerings (IPOs) by allowing payments banks to accept money from IPO applicants.
Payments bank carry out most banking operations, accepting limited deposits and offering remittance services, net banking and fund transfer facilities, but are not allowed to engage in business that entail credit risk, like giving loans or issuing credit cards. They are also not allowed to accept IPO subscriptions.
To ease the effort involved in subscribing for new share sales and allow investors in smaller cities and towns to buy stock, the Securities and Exchange Board of India (SEBI) is in talks with the central bank and payment banks, which have requested the market regulator to allow them to accept IPO applications, treating them on par with commercial banks, multiple people aware of the matter said.
“If the regulator allows payment banks to take investor money, then it would be helpful for retail investors, who can easily make payments from their apps. Now, app-based payment reach is much higher in Tier 2 or Tier 3 cities,” one person close to the development said, requesting anonymity.
SEBI and some payment banks that Moneycontrol reached out to, did not respond to request for comments.
Six payment banks are active in India: Airtel Payment Bank, India Post Payment Bank, Fino Payment Bank, Jio Payments Bank, Paytm Payment Bank and NSDL Payment Bank. NSDL is short for National Securities Depository Ltd.
“Sebi is in discussion with Reserve Bank of India, which is the sole regulator of this payment banks,” a second person close to the development told Moneycontrol.
A third person said only after the Reserve Bank of India clears the move would SEBI allow payment banks to participate in the IPO process.
Payment banks are allowed to accept deposits of up to Rs 2 lakh – a limit that may also be applied to them accepting applications for share purchases in IPOs.
With effect from 1 January 2019, SEBI made the use of the Unified Payments Interface (UPI) mandatory for individual investors applying to purchase up to Rs 2 lakh of shares in IPOs through regular intermediaries.