Payment Banks in India – Why India needs Payment Banks

payment-banks-in-India

RBI decided for setting up payment banks in India. The payment banks are banks which are designed to provide financial services like payment and remittance to migrant employee as well as low income group people. It operates on small scale having low credit risk. They work like bank.

    Payment Banks in India:

    Payment banks are differing from commercial and private banks. As per new RBI guideline dated 24 November 2014, RBI allows permission for setting up payment banks in India. With aim to promote digital, paperless and cashless transactions in India.

    Why do we need Payment banks in India?

    1. To help the poor citizen:

    As per RBI data, near about 60 % of lower income group of Indian population still not connected with banking service. This includes people from rural area who migrate to different cities for employment and work in unorganized sector. The payment banks act as a bridge to fill this gap and ensure that banking services reaches to doorstep of every Indian, so as to pull them in banking system.

    2. Traditional banks fail to reach in distinct area:

    For many commercial banks, it becomes difficult to open its branch at distinct place like very poor village. As a result the people of that area do not get access to banking service. For such difficulties payment bank becomes the best option. They need not to open there branch in that area. They use Aadhaar number and there mobile for e-KYC and bank transactions. As the uses of mobile phone are around 75% in India, which it increases day by day. They can remit and transfer money through their mobile.

    3. Financial Inclusion:

    Financial inclusion provide affordable and accessible financial service to each individual, workers and lower income households in the society. It include all banking services like opening of small saving account, basic no frill account, overdraft facility liked to no frill account and general insurance etc. It also includes all government schemes like PMJDY, PMJSY, PMJJY, Atal Pension Yojana Credit Enhancement Guarantee Scheme (CEGS) etc.

    Objective of setting up Payment banks in India:

    The main objective behind setting up of payment banks in India is to connect migrant and lower income group with the banking system under financial inclusion programme.

    Also Read:

    Features of Payment bank:

    1. Like other commercial banks, payment banks can also provide mobile banking and internet banking facility to their customers.
    2. Payment bank can not only receive cross boarder remittance on current account but also provide facility of personal payment to their customer.
    3. Similar to commercial banks, payment banks also have to maintain CRR with the RBI on its external demand and time liability.
    4. Payment bank has to pay 75% of required amount of SLR in government securities or fiscal bill with the maturity of one year required to be invested.
    5. Payment banks have to take prior permission from RBI before selling insurance, mutual fund and other pension products by making tie up with other commercial banks.

    Restrictions to Payment Bank:

    The working of all payment banks in India is similar to that of commercial and private banks but RBI imposed some restriction over payment banks.

    1. Payment banks can accept maximum deposit of Rs. 1 lakh from the customer
    2. As like commercial banks, all payment banks can issue debit card to their customer but they are not permitted to issue credit card.
    3. They can open both current as well as saving account of their customer but cannot provide lending service to them.
    4. There is restriction for Payment bank to accept deposit from NRI customer.
    5. Payment banks are not permitted to carry non-financial activities.
    6. To distinguish from other banks, RBI made it mandatory to use word “Payment Bank” in their name.

    Registration and licensing of Payment Banks:

    Payment banks are registered as Public Limited Company under Companies Act 2013 also licensed under section 22 of Banking Regulation Act 1949. The word “payment bank” should be used before name of the bank.

    The activity of payment bank is limited to -

    • Acceptance of deposits and payments and
    • Providing remittance services to their customer.

    Who may apply for payment bank?

    1. Existing non-bank Pre-paid Payment Instrument (PPI) issuer authorized under the payment and settlement Act 2007
    2. Individual and professionals
    3. NBFCs, Corporate Business Correspondences, real sector cooperatives, Telephone and Mobile companies, Super market chains that are owned and controlled by Indian.
    4. Public sector entities.

    Other important Provisions:

    1. Requirement of Capital: The minimum paid up capital required for setting up payment bank is Rs. 100 cr.
    2. Promoter’s contribution: Contribution of promoters should be at least 40% of minimum initial paid up equity capital for the first five year from commencement of business.
    3. Foreign Shear holding: It is strictly as per the guideline of Foreign Direct Investment policy (FDI) issued for private sector bank

    List of Payment Bank in India

    active-payment-banks-in-India

    The active payment banks in India are mentioned below -

    1. Airtel Payment Bank
    2. Indian Post Payment Bank
    3. Fino Payment Bank
    4. Jio Payment Bank
    5. Paytm Payment Bank
    6. NSDL Payment Bank

    Payment Bank Customer Care Number:

    Customer care numbers of six active payment banks are listed below -

    Sr No

    Payment Bank

    Customer Care Number

    1

    Airtel Payment Bank

    1800-102-002 esupport@in.airtel.com

    2

    Indian Post Payment Bank

    1800-180-7980

    3

    Fino Payment Bank

    1860-266-3466

    4

    Jio Payment Bank

    1800-891-9999

    5

    Patym Payment Bank

    0120-4456-456

    6

    NSDL Payment Bank

    1800-222-990

     

    Payment Bank and Small Bank:

    RBI in December 2019 announced final guideline for licensing of Small Finance Bank. Accordingly payment banks can apply for conversion in to Small Finance Bank after satisfactory five years of operation. RBI also raised requirement of minimum paid up capital form Rs. 100 Cr to Rs. 200 Cr for small finance bank. At least for five years, promoter need to hold 40% of their paid up voting equity capital. If it is more then it should be brought down to 40% within five years, 30% within 10 years and 15% within 15 years. After net worth of Small Finance Bank reaches to Rs. 500 Cr it will listed within three years.

    PAYMENT BANK

    SMALL BANK

    Who can promote?

    Prepaid card issuers, Telecom companies, NBFCs, Business correspondence, Super market chains, Corporates, Realty sector Co-ops and PSUs can be a promoter

    Individuals or professionals with 10 years’ experience in finance, NBFCs, Microfinance, Local area banks can be a promoter

    What they must do?

    Have a minimum capital of Rs. 100 cr

    Have a minimum capital of Rs. 200 cr (amendment in Dec 2019)

    Maintain minimum 75% of deposit in Govt. bonds

    Follow Priority sector lending norms and extend 75% of loan to Priority Sector

    Maintain 25% of deposit in other banks

    Have 25% of branches in unbanked area

    Have at least 26% investment by Indians

    Maintain reserve requirements

    Get listed if net worth crosses Rs. 500Cr

    Can provide loan to individual and groups at 10% and 15% of net worth

    Have 25% of branches in unbanked areas

    Have a business correspondent network.

    Be fully networked and technology driven

    Have Rs. 1 lakh cap for deposits in one Account

    What they can do?

    Offer internet banking                                      

    Sell Forex to customer

    Sell mutual funds, insurance, pension product with prior permission from RBI

    Sell mutual funds, insurance, pension products

    Offer bill payment service for customer

    Can convert in to full-fledge bank

    Have ATM and Business Correspondence (BC)

    Expand across the country

    Can function as BC for another bank

    What they can’t do?

    They cannot offer credit cards

    They can’t extend large loan

    Can’t extend loan

    Cannot float subsidiaries

    Can’t Handle cross-border remittance

    Cannot deal in sophisticated financial products.

    They cannot accept NRI deposits

     

                                                                                                                                                                                                                                                                                                                                   

    Summary:

    To promote financial inclusion programme and to pull migrant labor as well as poor citizen in the banking system, RBI felt need for setting up payment banks in India. These are small scale bank having low credit risk also help to implement financial inclusion programme in India. Like any bank, Payment bank can also provide mobile banking, internet banking facility, issue ATM and debit card to their customer. It also accepts deposit up to 1 Lakh in single account. RBI imposed some restriction on Payment banks like they cannot issue credit card, they are having restriction on lending, they cannot accept NRI deposit etc.

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