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Reviewed by Vishnava | Updated on Aug 16, 2023
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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CONTENTS
- What Are Payment Banks?
- Features of Payment Banks
- Activities That Can Be Performed By Payment Banks
- Activities That Cannot Be Undertaken By Payment Banks
- Advantages of Having Payment Banks
- Challenges Faced
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I'm well-versed in financial technology, particularly in the realm of taxation, compliance, and financial services. The article you've shared discusses Payment Banks, an initiative in India intended to boost financial inclusion. Payment Banks, stemming from the Nachiket Mor Committee recommendations, operate with minimal credit risk, aiming to provide banking and financial services to underbanked areas, migrant labor forces, and low-income households.
Payment Banks in India, such as Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank, and Jio Payment Bank, function with specific features and limitations:
Features of Payment Banks:
- Differentiation: They are not universal banks and operate on a smaller scale.
- Minimum Capital: They require a minimum paid-up capital of Rs. 100 crore.
- Initial Contribution: The promoter's initial contribution to the paid-up equity capital should be at least 40% for the first five years.
- Permissible Activities: Payment Banks can accept deposits up to Rs. 2,00,000, issue debit cards, facilitate personal payments, and receive cross-border remittances on current accounts.
- Investment Rules: They can invest deposits in secure government securities, with 75% in Statutory Liquidity Ratio (SLR) and the remaining 25% in time deposits with other scheduled commercial banks.
Activities Not Permitted by Payment Banks:
- Lending: They can't lend or issue credit cards.
- Deposits & Loans: Payment Banks cannot accept time deposits, NRI deposits, issue loans, or set up non-banking financial subsidiaries.
Advantages of Payment Banks:
- Rural Expansion: They facilitate rural banking and financial inclusion.
- Formal Financial System: Extend the formal financial system's reach.
- Efficiency: Efficient handling of low-value, high-volume transactions.
- Diverse Services: Access to a range of services.
Challenges Faced:
- Lack of Awareness: Limited awareness among the populace regarding these services.
- Incentive Challenges: Insufficient incentives for agents to engage in these activities.
- Infrastructure & Technological Hurdles: Lack of infrastructure and technological limitations.
The article covers various aspects, including licensing, operational boundaries, permissible activities, and the benefits and challenges faced by Payment Banks in India. This initiative aims to bridge gaps in financial accessibility, specifically targeting underserved communities.
