RBI released guidelines for Licensing of Payments Banks

Reserve Bank of India (RBI) on 27 November 2014 released guidelines for Licensing of Payments Banks.  These guidelines will allow mobile firms and supermarket chains, among others, to enter the banking arena to cater to individuals and small businesses.

The objectives of payments banks will be to further financial inclusion by providing small savings accounts and payments or remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.

RBI Guidelines
• Existing non-bank Pre-paid Payment Instrument (PPI) issuers, mobile firms and supermarket chains, among others existing NBFCs and micro finance lenders are promoters who are eligible to set up payment banks.
• Large public sector enterprises and big industrial houses are not allowed to establish Payment banks.
• A promoter or promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. But they should have a sound track record of five years period of running businesses.
• Payment Banks will initially be restricted to holding a maximum balance of 1 lakh rupees per individual customer. It can issue ATM or debit cards but not credit cards.
• Payment bank cannot undertake lending activities but can distribute the non-risk sharing simple financial products such as mutual fund units and insurance products, etc.
• These banks also should maintain Cash Reserve Ratio (CRR) with the Reserve Bank, it will be required to invest minimum 75 percent of its demand deposit balances in Statutory Liquidity Ratio (SLR) with maturity up to one year and hold maximum 25 per cent in current and time or fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
• The minimum capital for payments banks is 100 crore rupees and it should have a leverage ratio of not less than 3 percent that is its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
• The promoter’s minimum initial contribution to the paid-up equity capital for payments bank shall at least be 40 percent for the first five years from the commencement of its business.
• The foreign shareholding in the payments bank should be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
• The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms. It should have a high powered Customer Grievances Cell to handle customer complaints
• Those who are interested can apply before January 16 for first round of such permits however these guidelines are subjected to periodic review and revision.
• External Advisory Committee (EAC) of RBI will evaluate the applications and decision to issue an in-principle approval for setting up of payment bank will be taken by RBI.
• The validity of the in-principle approval issued by the Reserve Bank will be eighteen months.