RBI Stalls NPCI’s Bid To Acquire Stake In ONDC: Report

The Reserve Bank of India (RBI) has reportedly stalled the National Payments Corporation of India’s (NPCI’s) plans to acquire a stake in the Open Network for Digital Commerce (ONDC) citing potential conflict of interest.

“NPCI has run into a regulatory issue. While it wants to develop a payments and settlement system for ONDC, RBI feels that if it acquires a stake in the ONDC, then it will cease to become a neutral party. It, then, becomes an interested party,” a Business Standard report said quoting a source. 

This comes more than a month after it was widely reported that the payments arm of the government was looking to pick up a 9-10% stake in the state-backed ecommerce venture. 

Amidst all this, the central bank has now sought more time to study the proposal. 

“RBI wants to understand how NPCI will be an independent party here. That’s why the banking regulator is yet to give any clearance to NPCI,” added the source.

Interestingly, the chief executive officer (CEO) of the NPCI, Dilip Asbe, continues to be a part of the advisory council of ONDC.

The Regulatory Roadblock

While the deal was expected to be completed within the second week of September, it appears to now have hit a major regulatory roadblock. NPCI, which oversees the widely popular unified payments interface (UPI), was looking to invest around INR 10 Cr in ONDC. 

Alongside, the National Securities Depository Limited (NSDL) was also said to be mulling acquiring stakes in ONDC. There has been no clarity on the update regarding NSDL’s bids as well.

With its cutting-edge expertise in the domain of digital payments processing, NPCI’s attempt to build payments and settlement system for ONDC was largely seen as a natural extension of its capabilities. But, RBI believes that if NPCI acquires a stake in ONDC, then it will cease to become a neutral party.

Overall, a long line of public and private banks, such as the State Bank of India, Punjab National Bank, Bank of Baroda, HDFC Bank and ICICI Bank have invested in ONDC. In total, these financial institutions have already pumped INR 250 Cr into the venture. 

Unveiled at the fag end of 2021, ONDC aims to streamline India’s ecommerce landscape, deploying open source protocols to implement the ecommerce idea. 

Amid much fanfare and a lot of delays, the beta testing of the government’s ambitious digital commerce project went live in Bengaluru. The reality struck right after as the first day saw a meagre 161 orders. 

The platform has now set its eyes on the launch in the two major metropolises of the country – Delhi and Mumbai. 

Meanwhile, to accelerate adoption, the platform is now also mulling adding multiple language support to cater to a larger audience. Additionally, the ONDC is also looking to deploy other solutions such as text-to-audio, translators and visual-focussed solutions to attract more eyeballs. 

In a bid to assuage users regarding the trust and safety of the platform, it also published a consultation paper seeking comments from the public on the matter. Despite all the teething issues, ONDC has charted plans to reach around 100 cities and onboard 30 Mn sellers on the network by 2022.

While the platform single-handedly clarified that it does not compete with ecommerce giants such as Flipkart and Amazon, the stage appears set for a three-way fight between the giants. 

The overall Indian ecommerce market is projected to grow to a size of $400 Bn by 2030. As such, it is no surprise that if ONDC gets off to a powerful start, the network could very well eat into the margins of these ecommerce players. 

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.