Payments Banks: All you need to know about it!
Payments banks were first conceptualised by the Reserve Bank of India in an attempt to promote niche banking in the country. The main objective was to promote financial inclusion in the country by extending financial services to the underprivileged section of the society. In this regard, payments banks and small finance banks were thought of as solutions by RBI. The first ever payments bank was opened by Airtel Private Limited with the collaboration of Kotak Mahindra Bank as the major banking partner. India Post Payments Bank is the latest entity to start off the business with its first ever branch in Ranchi opened on 30th January 2017, one day after most of you had appeared for the mains exam of the post of Assistant Manager in the same organisation.
Payments Banks: The Genealogy and History
The seed of differentiated banks was first shown by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households formed by RBI on 23rd September 2013. It was headed by Nachiket Mor and it submitted the report on 07th January 2014. In this report, it was mentioned that a different kind of bank such as payments bank was required in India. In this regard, RBI released the draft guidelines and later final guidelines in November 2014.
In February 2015, RBI released the list of the entities that applied for a license for payments banks. There were 41 applications and an External Advisory Committee headed by Nachiket Mor was formed. On the recommendations of the committee, on 19th August 2015, 11 licenses were provided by the apex bank in-principle:
- Airtel M Commerce Services
- Vodafone M-Pesa
- Dilip Shanghvi
- Fino Paytech
- Aditya Birla Nuvo
- Cholamandalam Distribution Services
- Department of Posts
- National Securities Depository
- Reliance Industries
- Tech Mahindra
These licenses were made valid to these entities for a maximum period of 18 months within which they were supposed to make all the necessary arrangements in order to receive the final approval under Section 22 of the Banking Regulation Act, 1949. Afterwards, three entities surrendered their licenses and they are:
- Dilip Shanghvi (Sun Pharmaceuticals)
- Cholamandalam Distribution Services
- Tech Mahindra (it is the latest one)
What are these banks? Can I get loan from these banks?
Well, you are not allowed to take a loan from payments banks because the mandate allows the banks to only accept demand deposits to the extent of Rs 1 lakh. They can issue debit cards, online banking services but cannot lend money or issue credit cards to their customers. Some of the basic features of Payments Banks are:
- Payments banks are not allowed to involve in any kind of lending activity. Hence, they cannot issue a credit card or give any kind of loan to any customer.
- These banks are allowed to accept demand deposits only from the public in the form of savings and current accounts. So, you cannot open a fixed deposit account in a payments bank.
- These banks can accept demand deposit to the extent of Rs 1 lakh per person in the account. This limit is subject to review and may be increased further.
- These banks can offer debit cards, online banking services, remittance services, mobile banking services etc.
How will Payments Banks be regulated?
Well, the overall regulation of these banks lies with the Reserve Bank of India. The various conditions put forward by RBI in this regard are:
- The minimum capital requirement for a payments bank is Rs 100 crore.
- For the first five years of operation, the stake of the promoter should not be below 40 percent. However, the FDI limit is as per the existing regulations set for the private sector banks.
- The voting rights are capped at 10 percent but it can be increased to 26 percent per shareholder after taking prior approval from RBI.
- More than 5 percent acquisition in a payments bank will require prior permission from RBI.
- Majority of the board members in a payments bank should be independent directors based on the criteria set by the Reserve Bank of India guidelines.
- The bank should be totally mapped from the beginning whereas 25% of the total branches of the banks should be opened in the rural areas.
- These banks cannot form another subsidiary in order to undertake non-banking activities and they should use the name ‘payments bank” in the name so that they can be differentiated from the commercial banks.
- Payments banks will be regulated as per the provisions of the Section 22 of the Banking Regulation Act 1949. They will be registered as public limited company under Section 25 of the Companies Act 2013.
Payments Banks in India:
With the 18 months period coming to an end, there are three entities that have already started operation after taking the necessary approvals from the RBI. They are:
Airtel Payments Bank
It is the first ever payments bank to start operations in the country. The important facts regarding this bank are:
- It is a joint venture between Airtel M Commerce Services (80.1%) and Kotak Mahindra Bank (19.9%).
- This bank rolled out with 10000 retail outlets of Airtel in the country starting in Rajasthan on 23rd November 2016.
- In this bank, the Airtel mobile number of a customer is given as his/her bank account number.
- Mr Shashi Arora has been appointed as the MD and CEO of the Airtel Payments Bank.
- The interest rate on savings deposits is 7.25%.
- The bank also offers an accidental insurance of 1 lakh in every savings account opened with it.
Paytm Payments Bank
This is the second entity to start operations as a payment bank in the country. The important facts regarding this bank are:
- This bank got the approval of RBI in January 2017 and is going to open the first ever branch in Noida, UP whereas the first ever branch in the Northeast area will be in Guwahati, Assam.
- Vijay Shekhar Sharma, the head of Paytm, is expected to take up an executive role in this bank with majority shareholding. The rest will be held by One97 Communications which is also the parent company of Paytm.
- The Paytm wallet of yours will be shifted to the Paytm Payments Bank and with that, you will be able to operate everything and also can access various services as of now.
India Post Payments Bank
It is the third and latest entity to start the payments bank business in the country. The important facts of IPPB are:
- IPPB has been incorporated as a public limited company with 100 percent shareholding being with the Department of Posts, Government of India.
- The first branch of the bank was inaugurated in Ranchi and then at Raipur on 30th January 2017.
- The central government has already allocated Rs 500 crore for the financial year 2017-18 as it gears up to open 650 odd branches across the country.
- The rate of interest offered will be 4.50% for deposits up to 25000, 5% for deposits between Rs 25001 to Rs 50000 (both inclusive) and 5.5% for deposits up to Rs 1 lakh from Rs 50001.
- The bank will cater to the citizens through 1.54 lakh post offices spread across the country.
Payments Banks: The Need of the hour
Payments banks were conceptualised on the basis of financial inclusion so that more and more people can come under the ambit of financial organisations. The main objectives of payments banks are:
- It will help in achieving the financial inclusion target set by the Government of India by opening up new branches in unbanked areas.
- The banks will not be based on paper and pen services and therefore, more and more people will come without much fear of documentation.
- These banks will go a long way in promoting digital literacy in the country with an extensive use of online banking and mobile banking.
Payments banks are yet to become fully operational in the country though there have been positive feedbacks from various quarters regarding this new idea. However, given the lack of infrastructure in rural areas and a similar exercise in the form of Regional Rural Banks already falling flat, it will be interesting to see the way these banks survive in the long run.