Payments bank: for the informal sector

Updated - July 23, 2017 10:08 pm IST

Published - July 23, 2017 09:38 pm IST

 Book lovers using their cards/Paytm for payment during New Delhi World Book Fair at Pragati Maidan, in New Delhi.

Book lovers using their cards/Paytm for payment during New Delhi World Book Fair at Pragati Maidan, in New Delhi.

How is a payments bank different from a commercial bank?

There are two kinds of banking licences that are granted by the Reserve Bank of India - universal bank licence and differentiated bank licence. Payments bank comes under a differentiated bank licence since it cannot offer all the services that a commercial bank offers. In particular, a payments bank cannot lend. It can take deposits upto ₹1 lakh per account and it can issue debit cards but not credit cards. Commercial banks in India like State Bank of India or ICICI Bank, do not have any such restrictions.

What is the objective of a payments bank?

The main objective is to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses and other unorganised sector entities.

Besides remittance, can payments bank undertake any other activity?

A payments bank can work as a business correspondent (BC) of another bank. They can also distribute simple financial products like mutual fund units and insurance products.

How many payments banks have commenced operations?

Out of the 11 entities that received in-principle licence for opening payments bank, 7 entities received the final licence. Four payments banks have started operations — Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank and Fino Payments Bank.

What is the minimum capital requirement for a payments bank?

RBI has mandated the minimum paid-up equity capital for payments bank at ₹100 crore.

Where can a payments bank deploy its deposits?

Apart from maintaining Cash Reserve Ratio (CRR), these entities have to invest a minimum 75% of demand deposit balances in Statutory Liquidity Ratio (SLR)-eligible government securities or treasury bills with maturity of up to one year and hold a maximum of 25% in current and time/fixed deposits with other commercial banks for operational purposes and liquidity management.

Who all are eligible to set up a payments bank?

RBI permits non-bank Prepaid Payment Instrument (PPI) issuers, individuals and professionals, non-banking finance companies (NBFCs), corporate business correspondents (BCs), mobile telephone companies, super market chains, companies, real sector cooperatives that are owned and controlled by residents and public sector entities to apply for a payments bank licence. Setting up of a joint venture by a promoter with an existing commercial bank is also allowed.

Can a promoter apply for a payments bank licence now?

No. However, RBI has said it intends to use the learning from the current licencing round to appropriately revise the guidelines and move to giving licences more regularly, that is, virtually “on tap”.

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