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    payment banks

    What Are Payment Banks?

    • Based on the recommendations of the Nachiket Mor Committee, Payments Bank was set up to operate on a smaller scale with minimal credit risk.
    • The main objective is to advance financial inclusion by offering banking and financial services to the unbanked and underbanked areas, helping the migrant labour force, low-income households, small entrepreneurs etc.
    • They are registered under the Companies Act 2013 but are governed by a host of legislations such as Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007 and the like.
    • India currently has 6 Payment Banks namely, Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank and Jio Payment Bank.

    Features of Payment Banks

    • They are differentiated and not universal banks.
    • These operate on a smaller scale.
    • It needs to have a minimum paid-up capital of Rs. 100,00,00,000.
    • Minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall at least be 40% for the first five years from the commencement of its business.

    Activities That Can Be Performed By Payment Banks

    • Payment banks can take deposits up to Rs. 2,00,000. It can accept demand deposits in the form of savings and current accounts.
    • The money received as deposits can be invested in secure government securities only in the form of Statutory Liquidity Ratio (SLR). This must amount to 75% of the demand deposit balance. The remaining 25% is to be placed as time deposits with other scheduled commercial banks.
    • Payments banks will be permitted to make personal payments and receive cross border remittances on the current accounts.
    • It can issue debit cards.

    Activities That Cannot Be Undertaken By Payment Banks

    • Payment banks receive a ‘differentiated’ bank license from the RBI and hence cannot lend.
    • Payment banks cannot issue credit cards.
    • It cannot accept time deposits or NRI deposits.
    • It cannot issue loans.
    • It cannot set up subsidiaries to undertake non-banking financial activities.

    Advantages of Having Payment Banks

    • Expansion of rural banking and financial inclusion.
    • Expansion of the formal financial system.
    • Effective alternative to commercial banks.
    • Efficiently deals with low value, high volume transactions.
    • Access to diversified services.

    Challenges Faced

    • Lack of awareness among the masses to access these services.
    • Lack of incentives for the agents to involve themselves in these activities.
    • Lack of infrastructure and access to operational resources.
    • Technological hurdles.

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