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.
