PAYMENT BANK LICENSE www.enterslice.com
INTRODUCTION • Payments banks is a new model of banks conceptualized by the Reserve Bank of India (RBI) . These banks cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks. • Payments banks can issue services like ATM cards, debit cards, net-banking and mobile-banking. • These banks will aim at providing high volume-low value transactions in deposits and Payments / remittance services in a secured technology-enabled environment.
RBI ROLE • RBI will create a framework for licensing payments banks / small banks & other differentiated banks. • These local area banks, payments banks & small banks are expected to meet credit & remittance needs of small businesses, unorganized sector, low income households & migrant work force. • RBI had already issued guidelines for licensing payment banks . • RBI has received around 72 applications for setting up small banks & 41 applications for payment banks
OBJECTIVES OF CREATING PAYMENT BANKS IN INDIA • We can sum up the objectives in one sentence that these banks have been created to help India reach its financial inclusion targets. This type of bank can be highly useful for migrant labourers, low income households, small businesses, and other unorganised sector entities. • RBI in its guidelines says “the objectives of setting up of payments banks will be to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.
RBI GUIDELINES FOR PAYMENT BANK ELIGIBILITY CRITERIA OF APPLICANTS Prepaid payment instructions issuers, Professionals , NBFCs, Telecom Companies , Supermarket chains, Corporates etc. The payment banks would be required to use the word ‘payments’ in its name differentiate it from other banks The minimum Capital Required is Rs. 100 crore .
SCOPE OF ACTIVITY • Payments Banks can offer Deposits (only current/saving accounts), issue ATM / Debit cards, payments and remittances services and can also act as Distributor of Third party products (can cross sell insurance, mutual funds etc.,) • They cannot issue Credit Cards. • Payment Bank can not undertake Lending activities. They should not offer loans.
HOW SAFE IS YOUR MONEY IN PAYMENT BANK A Payments bank will be required to invest 75% of its demand deposits balances in Government Securities (G-Sec) & Treasury Bills. They have to meet Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio requirements set by RBI. A maximum of 25% of its deposits will have to be held in current and fixed deposits with other scheduled commercial banks.
RBI GUIDELINES FOR SMALL BANKS Eligibility
• Professionals with 10 years of experience in banking / finance / Micro Finance Institutions. • The minimum capital requirement is Rs 100 crore (minimum paid-up equity capital). • The bank shall primarily undertake basic banking activities of accepting deposits and lending to small farmers, small businesses, micro and small industries, and unorganized sector entities. It cannot set up subsidiaries to undertake non-banking financial services activities. After the initial stabilization period of five years, and after a review, the RBI may liberalize the scope of activities for Small Banks.
CONT….. • The bank should be fully networked from the beginning. The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will be capped at ₹100,000 per customer, but it may be raised by the RBI based on the performance of the bank. The bank cannot undertake lending activities. 25% of its branches must be in the unbanked rural area. The bank must use the term "payments bank" in its name to differentiate it from other types of bank. • The banks will be licensed as payments banks under Section 22 of the Banking Regulation Act, 1949, and will be registered as public limited company under the Companies Act, 2013.[2]
CONT….. • The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 per cent of capital funds. • For the first three years, 25 per cent of branches should be in unbanked rural areas. • Off the loans issued by small banks , 75% should be to the so- called priority sector which includes agriculture & small businesses. & after half the loan portfolio of the banks should be loans & advances of upto to Rs. .25 lakh to micro finance businesses.
ADVANTAGES OF PAYMENT BANK • Payment banks may make handling cash a lot easier. For example, you can transfer money using your mobile phone to another bank or to another mobile phone holder and also receive amounts through your device. Or you can transfer the amount to point-of-sale terminals at large retailers and take out cash. • Payment banks will pay interest rate on savings accounts • Payment Banks cannot lend Money. So, to make money and be profitable, they have to charge its customers for the transactions that are executed through them.
RBI grants in-principle nod to 10 Small Banks’ applicants. The selected Applicants are as below : • • • • • • • • • •
Au Financiers (India) Limited, Jaipur Capital Local Area Bank Limited, Jalandhar Disha Microfin Private Limited, Ahmedabad Equitas Holdings P Limited, Chennai ESAF Microfinance and Investments Private Limited, Chennai Janalakshmi Financial Services Private Limited, Bengaluru RGVN (North East) Microfinance Limited, Guwahati Suryoday Micro Finance Private Limited, Navi Mumbai Ujjivan Financial Services Private Limited, Bengaluru Utkarsh Micro Finance Private Limited, Varanasi
LATEST – RBI GRANT APPROVAL • RBI grants in-principle nod to 11 companies for Payments Bank licence. Name of the applicants that have received nods are – 1) National Securities Depository Limited (NSDL), 2) Reliance Industries, 3) Aditya Birla Nuvo, 4) Airtel M Commerce, 5) Department of Posts, 6) Fino Paytech, 7) Tech Mahindra, 8) Vodafone m-pesa, 9) Cholamandalam Distribution services, 10) Paytm and 11) Sun Pharma.
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