RBI Permits Foreign Firms to Process Abroad with a Condition of Storing Data in India

Foreign payment companies like Mastercard and Visa are allowed to process transactions made in India outside of the country, however, the related data must be stored locally within 24 hours, as per the directive of the Reserve Bank of India (RBI). The announcement came to elucidate the central bank’s ordinance in April 2018 that directed foreign firms to ensure that they store their payments data “only in India” so that they get “unfettered supervisory access”.

The RBI rules resulted in an aggressive lobbying attempt from the U.S. government and American organizations who felt that the directive would escalate infrastructure costs and affect organizations’ investment plans. As per the Reuters report, the request to dilute the rules has been declined last year.

The RBI has recently stuck to its position but has made clear that the payment transactions are permitted to be processed outside the country in case the companies wish the same. The earlier RBI directive did not point on the fact if data could be processed abroad or must only be done locally only.

However, even in scenarios where the transactions were processed abroad, the RBI guided that the data should be “deleted from the systems abroad and brought back to India” and that too within 24 hours of the payment processing.

“The clarity on processing, and the ability to do so overseas, is a welcome development. Although the clarifications do not ease the local-only storage requirement,” said Kriti Trehan, a partner specializing in technology law at the Law Offices of Panag & Babu.

The RBI clarification has come after India’s commerce ministry, subsequent to a meeting with technology and payment firms, said the central bank is going to “look into” issues brought up by the industry.

The differences amid American firms and India have fuelled additional trade tensions between Washington and New Delhi. Recently, the U.S. Secretary of State, Mike Pompeo made efforts to lessen these tensions by assuring a renewed emphasis on negotiating better ties; however, he gave few specifics on his visit to New Delhi, the Indian capital.

India is looking at more stringent rules regarding data storage so that it can access data in a better way and carry on the investigations if the need arises.

Besides the RBI’s directive for payment firms, India has also made an overarching law around data storage which mandates that all the personal data which could be critical must be processed locally. So if you are planning new company formation in India or company incorporation in India then you must keep these directives in mind.