Payments banks are new model of banks, conceptualised by the Reserve Bank of India (RBI), which cannot issue credit. These banks can accept a restricted deposit, which is currently limited to ₹200,000 per customer and may be increased further. These banks cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks. Payments banks can issue ATM cards or debit cards and provide online or mobile banking. Bharti Airtel set up India’s first payments bank, Airtel Payments Bank.
The minimum capital requirement is ₹200 crore. For the first five years, the stake of the promoter should remain at least 40%. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India. The voting rights will be regulated by the Banking Regulation Act, 1949. The voting right of any shareholder is capped at 10%, which can be raised to 26% by the Reserve Bank of India. Any acquisition of more than 5% will require approval of the RBI. The majority of the bank’s board of directors should consist of independent directors, appointed according to RBI guidelines.
The bank should be fully networked from the beginning. The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will be capped at ₹100,000 per customer, but it may be raised by the RBI based on the performance of the bank. Payment Banks are not permitted to lend to any person including their directors. 25% of its branches must be in the unbanked rural area. The bank must use the term “payments bank” in its name to differentiate it from other types of bank. The banks will be licensed as payments banks under Section 22 of the Banking Regulation Act, 1949, and will be registered as public limited company under the Companies Act, 2013.
Payment Banks are a part of a special category of banks which are authorized to offer a limited range of services to its customers, which include providing remittances and receiving payments. These banks primarily differ from Differentiated banks by the fact that they are not authorized to carry out lending services in the form of giving loans or issuing Credit Cards. Payment Banks have been vital to the realization of financial inclusion which promotes affordable financial services to the low-income and disadvantaged groups.
Financial inclusion aims at providing a platform for the low- income groups to save their life earnings. In the absence of such a platform, income of the disadvantaged sector including the rural laborers and the urban wage workers is often saved in the form of gold or is used in overspending. Keeping in mind these obstacles to economic growth and prosperity, the development of payment banks was seen as a means to overcome these hindrances.
Payment Banks will utilize the Mobile Platform to facilitate transactions between two or more parties. They have been designed to deliver banking services in the most remote areas of the nation as a step towards economic progress. Payments banks will be available where physical penetration is difficult and is most likely to bring about a dip in the cost of banking services when compared to differentiated banks. They have become a means of reaching out to the erstwhile unbanked regions to incorporate those regions into mainstream financial systems by promoting financial inclusion.
Payment Banks are a partnership between Banks and telecom companies. Since the rural and remote areas lack the infrastructure for the institutional development of Banks and financing systems, Payment banks which operate through the medium of mobile phones are best suited for such a situation. These banks are likely to aid the disadvantaged groups to carry out transactions electronically eliminating the role of middlemen, while at the same time facilitating organized finances throughout the country.
The Payment Banks were recommended with a twin goal to ensure Financial Inclusivity. Firstly, to act as a platform where the low-income groups can have a Savings account and deposit their incomes and savings. Secondly, to facilitate transactions and payments for small businesses and promote entrepreneurship. For instance, to pay the wage to migrant laborers and to cover costs of raw materials.
Payment Banks will rid the semi-literate population to carry out all banking services at one stop including paying bills, transfers to others, making deposits and the like. They will empower the users to carry out end to end transactions. Payment Banks will also facilitate the transfer of money to remote locations beneficial to the migrant workers. Also, since payment banks work through the medium of mobile phones, the youth has been attracted by its easy and comfort of carrying out transactions with a click.
For our FinTech Clients at Recro, we follow the same approach during the conceptualisation and Blueprinting phase. Just to bring out the best from the product.
Role and Scope of Payment banks
Raghuram Rajan, the former Governor of RBI stated that these payment banks will act as a complementary role to the existing commercial banks. Though payment banks can accept a deposit of Rs.1, 00,000, they cannot offer credit to its customers. There is a wide array of services which commercial banks can provide; however, the role of payment banks is yet, restricted. “After a long discussion, the board (the RBI board) concluded these new banks will be additional, they will complement the existing system by traversing the last mile. The reason for that is there is nothing universal banks cannot do that payment banks can. But there are some things payment banks can’t do that universal banks can.” Rajan said. “Payment banks will be useful as they could bring new players into the system. Those with existing businesses can reduce the cost of access and, therefore, payment banks will serve as feeder to universal banks.” he added.
- As the commercial banks, the payment banks will also accept the money of the people as a deposit but the limit is fixed, which means the payments banks can accept deposits up to a maximum of Rs. 1 lakh from a customer.
- Payments banks; will be entitled to issue ATM or debit cards to their customers but cannot issue a credit card.
- Payments banks; will be authorised to open both savings and current accounts of their customers.
- Payments banks cannot provide loans or lending services to customers.
- Payments banks cannot accept deposits from the Non-Resident Indians (NRIs). It means; the people of Indian origin who have settled abroad cannot deposit their money in the payment banks.
- Payments banks will be allowed to make personal payments and receive remittances from the cross border on the current accounts.
- Payments banks will have to deposit the amount in the form of a Cash Reserve Ratio (CRR) with RBI as other commercial banks do.
- Payments Banks will have to invest a minimum of 75% of its demand deposits in government treasury/securities bills with maturity up to one year and hold a maximum of 25 %in currents and fixed deposits with other commercial banks for operational purposes.
- Payment banks can provide the Facility of utility bill payments to its customers and the general public.
- Payments banks cannot open subsidiaries to undertake Non-Banking Financial Services activities.
- Payments bank; with approval from RBI, can work as a partner with other commercial banks and also can sell mutual funds, pension products, and insurance products.
- Payments banks must use the word “Payments Bank” in their names to look different from other banks.
- Payments banks will be allowed to provide internet banking and mobile banking facility to their customers.
- Payments banks can become a business representative of any other bank, but it will have to comply with the guidelines of the Reserve Bank of India.
- The payments banks can accept remittances to be sent to or receive remittances from multiple banks through payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.