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What are Payments Banks?
Definition: A payments bank is like any other Scheduled bank, but operating on a smaller scale without dealing with any credit risks (lending or credit giving business). In simple words, it can carry out most banking operations but can’t provide loans or issue credit cards to its customers. It can accept demand deposits (up to Rs 1 lakh), offer remittance services (needs further permission from RBI), mobile payments/transfers and other banking services like ATM/debit cards, net banking, and third party fund transfers.
Description: In September 2013, the Reserve Bank of India constituted a committee headed by Dr. Nachiket Mor to study ‘Comprehensive financial services for small businesses and low-income households’. The objective of the committee was to propose measures for achieving financial inclusion and increased access to financial services.
The committee submitted its report to RBI in January 2014.The key recommendations by the committee were
- No more licenses to open PPI (Pre-paid Instrument Provider)
- If any organization or company is still interested then ask them to become Banking business correspondent or open payments bank.
These recommendations were forwarded, As the committee found that PPI (Pre-paid Instrument Provider) do not offer interest to the consumer.From the financial inclusion point of this is not viable.As it does not help or promote poor households and small business man to save their money.Also, PPI model is a “nested model” & can lead to “Contagion Risks”.
On the basis of these key suggestions of the committee was to introduce specialized banks or ‘payments bank’ to cater to the lower income groups and small businesses.
Who are licensed to operate a Payments Bank?
Reserve Bank of India (RBI) granted “In-principle” approval to 11 entities to set up payments bank and proposed such licenses “On-Tap” in future.The 11 entities which have “In-Principle” approval are
1.Department of Post
2.Reliance Industries (Jio)
3.Aditya Birla Group Nuvo
4.Vodafone
5.Airtel (Airtel Payments Bank)
6. Cholamandalam Distribution Services
7. Tech Mahindra
8. National Security Depository Limited
9.Fino Paytech
10.Sun Pharma`s Dilip Shantilal Shanghvi
11.Paytm`s Vijay Shekar Sharma
The RBI Guidelines say that payments banks licenses would be granted to mobile firms, supermarket chains, and others to cater individuals & small business.
Objectives behind setting up Payments Banks
1. Payments Banks would bring about financial inclusion.
- Provide small savings accounts at no cost.
- Provide interest on savings account (subjected to KYC)
- Payments/remittance services to migrant labor workforce & low-income group.
2. Strengthen Payments Infrastructure
- For the small businesses,un-organized sector & self -employed people.
- Bring these stakeholders of the economy under formal channels of transactions.
- Provide them a reliable & affordable channel to carry out their activities.
Eligibility for Promoters
- Existing Non -bank Prepaid Payment Instrument Issuers (PPI) and other entities such as individuals/professionals, Non-banking finance companies (NBFC), Corporate Bussiness correspond(BCs), Mobile Telephone companies, Super Market Chains, companies, Real estate sector cooperatives and Public sector entities.
- A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank.However, scheduled commercial bank to the extent permitted under section 19 (2) of the banking regulation Act 1949.
- Promoters/promoter groups should be “Fit and Proper” with a sound track record of professional experience in their businesses for at least a period of five years in order to be eligible to promote payments bank.
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