Payment Banks

Academy   Last Update - 2023-06-09

RBI has taken an advanced step to push our financial inclusions by providing the guidelines for licensing differentiated banks such as Payment Banks and Small Finance Banks.On November 27 2014, RBI released the final guidelines for payment banks.These guidelines will allow mobile firms and other valid entity to enter the banking field to service the individuals and small businesses.

What is Payment Bank?
 The main objective of the payment bank is providing small savings accounts and payments or remittance services to low income households,small businesses,other unorganized sector entities and other users.

Guidelines and Regulations provided by RBI for Payment Banks

DO’s
 i.These banks can able to operate current accounts and saving accounts.They can issue ATM or Debit cards, Net Banking and Mobile Banking facilities to their customers.
 ii.The payment banks can take restricted deposits which is currently limited to₹1 lakh per customer.
 iii.They can distribute the non-risk financial products such as mutual funds and insurance.

Dont’s
 They don’t have rights to provide lending services such as credit cards and issue loans facilities.

Other Guidelines and Regulations to follow
 1.The initial minimum capital requirement of ₹100 crore is mandatory. FDI of 74% is allowed.
 2. The promoter contribution must be 40% for the first 5 years.
 3. Non – resident Indians(NRI) will not be allowed to open accounts in payment banks.
 4.They can be integrated with your savings bank accounts via IMPS and NEFT transfers and could enable transfers and remittances through a mobile phone.
 5. Payment banks must maintain CRR minimum 75% of demand deposits in government bonds of upto one year.
 6.They must maintain maximum 25% in current and fixed deposits with other scheduled commercial banks for operational purpose and liquidity management.
 7.25% 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.
 8.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.
 9.The voting rights will be regulated by the Banking Regulation Act, 1949. The voting right of any shareholder is capped at 10% now.

Payment banks cannot lend money, so from where will they get profit?
 The payment banks are allowed to invest their customers deposit into government securities from which they can raise money.

How does the Payment Banks reach their customers in far flung areas?
 i.Payment bank will reach through mobile phones.Further, bank correspondents can be employed to make reach the services of Payment Bank to every citizen in villages.
 ii.The recharge shops can play a crucial role in Payment bank expansion.A mobile wallet can be used for transactions.
 List of Active Payment Banks:

List of 11 entities selected to launch Payment banks
 On 19 August 2015, the Reserve Bank of India gave “in-principle” licences to eleven entities to launch payments banks.They are

1. Aditya Birla Nuvo
2. Airtel M Commerce Services
3. Cholamandalam Distribution Services
4. Department of Posts
5. FINO PayTech
6. National Securities Depository
7. Reliance Industries
8. Sun Pharmaceuticals
9. Paytm
10. Tech Mahindra
11. Vodafone M-Pesa

From the above , three entities “Cholamandalam Distribution Services”, “Sun Pharmaceuticals” and “Tech Mahindra” have surrendered their licenses. 

This license is valid for 18 months within which the entities must fulfill the requirements. They are not allowed to engage in banking activities within the period. The RBI will consider grant full licenses under Section 22 of the Banking Regulation Act, 1949, after it is satisfied that the conditions have been fulfilled. 

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