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Private players set to enter domestic money transfer

Ambarish Mukherjee

NEW DELHI, Jan. 26

THE Government has decided to open up domestic money transfer business to private players, both domestic and foreign, thereby putting an end to the monopoly enjoyed by the three-lakh strong post office network for the money order service.

For this, the Department of Economic Affairs (DEA) has asked the Department of Revenue (DoR) and the Reserve Bank of India (RBI) to formulate guidelines for private sector's entry in the domestic money transfer business.

According to sources familiar with the developments, there are likely to be two separate sets of entry criteria, one for domestic companies and the other for foreign. The business of domestic money transfer is likely to be added to the list of approved activities to be undertaken by non-banking financial companies (NBFCs).

The sources, however, did not specify any time-frame for announcing the guidelines but pointed out that the decision to put the guidelines in place follows the interest among private players noticed by the Government.

The Department of Posts currently provides domestic money transfer service in the country through the money order facility available at the post offices while it has an arrangement with Western Union Financial Services International Ltd, one of the largest money transfer agents in the world, and subsidiary of the US-based First Data Corporation (FDC), for remittances of funds outside India. Only last month the Government allowed Western Union to start domestic money transfer in India but the company's services are yet to take off.

In December, Western Union had been asked to fulfill a minimum capitalisation norms of $50 million, applicable to NBFCs engaged in fund-based activities following, which the company applied to the Government for waiving of the $50 million capitalisation norm which, according to the company is inappropriate, unreasonable and unviable because its operation involves rapidly transmitting money by utilising a network of independent representatives and does not involve accepting deposits, offering returns or other financial services. The Government rejected the application in the second week of January.

Meanwhile, another NBFC — Wall Street Financial Ltd, has approached the Government for permission to start domestic money transfer business. This company, which also functions as money-changer, has sought inclusion of "domestic remittances'' in its list of activities, but the Government has not taken any decision as yet.

According to the existing provisions, domestic money transfer is not an activity that is reserved for the public sector or the Government though traditionally, the Department of Posts provide the services. But there is no system in place for private entry either.

It is also not within the list of 18 approved NBFC activities. So the new guidelines are being formulated to facilitate the entry of more players, the sources said.

Industry sources pointed out that there are a number of domestic NBFCs who are awaiting the opening of this sector and once the guidelines are in place, private players are likely to give the Department of Posts a run for its money just as they did when private courier services sector was thrown open.

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