A payment bank is a new model introduced by the Reserve Bank of India(RBI) which facilitates transactions like a regular bank with the exception of lending and issuing credit cards.
Payment bank makes banking life better due to the flexibility and convenience they provide. They also offer a bouquet of services to the consumers through secured digital platforms which help the government in their motive of “Digital India”.
It is mandatory to obtain a payment bank license in order to open a payment bank. The Reserve Bank of India (RBI) issues the license as per Section 22 of the Banking Regulation Act 1949.
1. What is the Procedure to Apply For a Payment Bank License?
- The payment bank shall be registered as a public limited company under the Companies Act 2013 and shall be issued a license under Section 22 of the Banking Regulation Act 1949.
- As per Rule 11 of the Banking Regulation(Companies) Rules 1949, any company incorporated in India and desiring to commence banking business shall make an application using Form III for payment bank license.
- The application shall be addressed to the Chief General Manager of the Department of Banking Regulation, RBI.
- The initial screening shall be conducted by the RBI to check the prima facie eligibility and if need be additional criteria may also be applied.
- An External Advisory Committee (EAC), consisting of eminent professionals like Chartered Accountants, Bankers, Finance Professionals, etc. shall assess the applications.
- The EAC may call for information as well as have discussions with applicants as may be required by it.
- The decision to issue an in-principle approval shall be made by the RBI, and it shall be final.
- The in-principle approval shall stay valid for 18 months which means the bank has to be set up within such period.
- In case any adverse features are noticed post-issuance of the in-principle approval, the RBI may impose additional conditions and if required, it may withdraw the in-principle approval.
2. Minimum Paid-up Capital Needed for Getting a Payment Bank License
The minimum required paid-up equity capital for opening a payment bank according to RBI is Rs 100 crore. Also, for the first five years of commencement of establishment, the promoter must contribute at least 40% of the paid up equity capital. The foreign shareholding will be permitted in payment banks for Foreign Direct Investment (FDI) in private banks in India as per the Foreign Direct Investment policy (FDI Policy) as amended from time to time.
3. Qualifying Promoters Who can Get a Payment Bank License
RBI has defined a long list of qualified players for the Payment Bank License, as it requires a minimum of Rs 100 crore in the form of paid-up capital. The promoters who qualify for the Payment Bank License procedure include:
- Existing non-bank Pre-paid Payment Instrument issuers authorised under the Payment and Settlement Systems Act, 2007
- Corporate business correspondents
- Mobile telephone companies
- Supermarket chains
- Real sector co-operatives
- Public sector entities
4. What are the Activities a Payment Bank Allows?
The activities permitted include:
- Acceptance of demand deposits to the tune of Rs 1 lakh per customer.
- Issuance of debit cards.
- Payment and remittance services.
- Distribution of financial products such as, mutual funds and insurance.
- Issuance of a prepaid payment instrument.
- Internet banking services.
- Acting as a business correspondent of another bank.
- Utility bill payment on behalf of the customers
5. Requisites For Setting Up a Payment Bank
- The payment bank shall be required to invest a minimum 75% of its demand deposit balances in securities issued by the Government or Treasury Bills having maturity up to 1 year that is identified by RBI as eligible securities for maintenance of Statutory Liquidity Ratio (SLR).
- Maintain a maximum of 25% in current and time deposits with other scheduled commercial banks for its operations and also for the management of liquidity.
- The bank shall have a minimum paid-up capital of Rs 100 crore.
- A capital adequacy ratio of minimum of 15% of its risk-weighted assets and a leverage ratio of not less than 3% shall be maintained.
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- The FDI policy for private banks shall be the guiding policy for foreign shareholding.
- As the payment bank may face operational or liquidity risk, they shall be required to follow the guidelines laid down by RBI with regard to liquidity risk management.