Payment Banks

In a bid to promote financial inclusion the Union government has come up with ideas like Payment Banks & Small Banks. The RBI has recently granted ‘in principle’ approval for payment banks to 11 entities, including big names like Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as also Airtel and Vodafone.

What is Payment Bank?

Payment Banks are banks that will undertake only certain restricted banking functions that the Banking Regulation Act of 1949 allows. They are expected to reach customers mainly through their mobile phones rather than traditional bank branches.

Important Features:

  • Currently, they have been  allowed to collect deposits up to Rs 1 lakh per individual.
  • These banks cannot issue loans and credit cards.
  • They can operate both current account and savings accounts.
  • Payments banks can issue services like ATM cards, debit cards online banking and mobile banking.

 

Regulations:

  • 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.
  • The minimum capital requirement is INR 100 crore.
  • For the first five years, the stake of the promoter should be 40% minimum.
  • Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India.

 

Who has Reserve Bank granted in-principle approval to be a payment bank?

payment-banksRBI has recently granted ‘in principle’ approval for payment banks to 11 entities, including:

  • Aditya Birla Nuvo Ltd
  • Airtel M Commerce Services Ltd
  • Cholamandalam Distribution Services Ltd
  • Department of Posts
  • Fino PayTech Ltd
  • National Securities Depository Ltd
  • Reliance Industries Ltd
  • Dilip Shantilal Shanghvi
  • Vijay Shekhar Sharma
  • Tech Mahindra Ltd
  • Vodafone m-pesa Ltd

 

Importance of Payment Banks:

  • The move is a step for improving financial inclusion in the country.
  • RBI expects payment banks to target India’s small businesses, migrant labourers and low-income households, offering savings accounts and remittance services with a low transaction cost. It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform.
  • The innovation is also expected to accelerate India’s journey into a cashless economy.
  • India’s domestic remittance market is estimated to be about Rs. 800-900 billion and growing. With money transfers made possible through mobile phones, a big chunk of it, especially that of the migrant labour, could shift to this new platform.
  • Payment banks like trough department of Posts can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts.
  • This is the first time since banks were nationalized, that private sector business groups have got the RBI’s nod for banking services.

Experience in other countries

Payment technologies have proved hugely popular in other developing countries. In Kenya, the most cited success story, Vodafone’s M-Pesa is used by two in three of adults to store money, make purchases and transfer funds to friends and relatives.

Difference with Small Banks:
small-banks