Payments Banks License in India: RBI Regulation

Ashish M. Shaji

16 Dec, 2020

Payments Banks is a concept introduced by the Reserve Bank of India (RBI). Maximum deposits are restricted to amount INR 1 Lakh per customer which shall be increased in future. Under these payment banks both the current as well as saving bank account can be operated. They can also provide services related to debit cards, online banking, and mobile banking and ATM cards.

Payment banks are also allowed to set up their branches and ATMs. Its activities would be restricted to activities permitted to banks under the Banking Regulation Act 1949. The requirement of the minimum capital for payment bank shall be 100 Crores. Under this NRI deposits are not allowed and accepted. Payment banks are not allowed to do lending activities.

Objective of Payments Banks

The main objective of the Payment Bank License is to provide small saving account and another object is to extend the financial services to small business, migrant labour force, low-income households and unorganized sector in India.

Who All are Eligible to Apply for Payments Banks License?

• Existing non-bank prepaid payment instrument under the Payment and settlement systems Act, 2007.
• Individuals/Professionals.
• Non-Banking Finance Companies.
• Business correspondents.
• Mobile telephone companies.
• Supermarket chains.
• Public Companies.
• Real sector cooperatives.
• Public Sector Entities.

RBI has given approval to 11 entities to establish payment bank in India. It is valid for 18 months according to RBI guidelines. In case these entities fail to open a payment bank then they will have to surrender principal approvals. If the entities comply with all the requirements then RBI shall consider granting a license to them for the commencement of banking business. These payment banks cannot operate in a full-fledged banking business.

Payment banks are similar to normal banks however they are allowed to do only few banking services in comparison to normal banks. It is the new entrant in digital India. From before, bank accounts and credit cards are being used in the online transaction.

Services Offered by Payment Banks

Here are the services provided by the Payments banks in India:

• A payment bank can accept deposits up to Rs. One lakh per individual from its customers.
• One can open a saving/current bank account with payment banks.
• Payment banks can pay interest on deposits.
• Payment banks can transfer payments through branches, ATMs, business correspondence etc.
• Payment banks can issue debit cards and ATM cards to its customers.
• With these payment banks, mobile banking can also be assessed.
• Payment banks can provide internet banking which includes payment mechanism approved by RBI.
• With the help of these payment banks, one can make payment of utility bills also.
• Payment banks are also involved in providing financial services like access to mutual funds, insurance products, pension products and forex related services subject to conditions imposed by RBI.

Services that cannot be provided by Payment Banks

Here are the services that cannot be provided by the Payment banks:

• Credit cards cannot be issued by payments banks according to RBI guidelines.
• They cannot deal in relation to lending business. They cannot issue loans to their customers.
• They are not allowed to accept deposits from NRIs (Non-Resident Indians).
• They cannot set up subsidiaries for undertaking non-banking financial services.

Procedure to obtain Payments Banks License

The procedure to obtain this license is as follows:

• The applicant should incorporate a public limited company as per RBI Regulations;
• Then file an application to the Chief General Manager (RBI) to plead for the issuance of this license;
• The external advisory committee will evaluate the application. The committee will call the applicant to verify the authenticity of the credentials;
• When the examiner is satisfied, the RBI^[1] will grant this license.

Difference between Traditional Banks & Payments Banks

The difference between Traditional Banks and Payments Bank is highlighted in the table made below:

List of Payments Banks in India

Here is the list of 11 applicants who got “In principal Approval” from the Reserve Bank of India for the opening of a payment bank in India:

• Aditya Birla Nuvo Limited (Idea Cellular )
• Reliance Industries (Joint venture: 70% RIL, 30% SBI)
• Airtel M Commerce Services Limited
• Vijay Shekhar Sharma (PayTM)
• Cholamandalam Distribution Services Limited
• Department of Posts ( India Post )
• Fino PayTech Limited
• National Securities Depository Limited (NSDL)
• Dilip Shantilal Shanghvi ( Sun Pharma )
• Tech Mahindra Limited
• Vodafone M-Pesa Limited

Out of these Airtel is the first payment bank in India to start its operations in India in the year 2016. They are providing 7.25% on deposits in the savings account but they charge 0.65% on withdrawal above Rs. 4000.  They are providing good interest rate but charging for withdrawal over a specified limit.

IndiaPost is the second payment bank who started its functioning in the year 2017. They are offering an interest rate of 4.5% to 5.5% on deposits in saving bank account.

Paytm payment Bank has been already launched in May 2017. Initially, they are inviting limited users to open a bank account but it is likely to expand in coming months. In this, current Paytm wallet shall be moved to a current bank account. With this users can open current or savings account and can access to wide range of financial services.

Conclusion

To launch payments bank, other license holders are also accelerating. They are helping India to move towards a digital economy. It will turn India into a cashless economy. It is a very good step to redefine banking system in India. The dream of “Banking at your Doorstep” will turn out in reality even in the remotest area of India. Payment banks are providing digital innovation to the banking sector. It will bring revolution in the banking sector for the betterment of people of India.

Read our article: RBI Unveils New type of Semi-Closed Prepaid Payment Instruments (PPIs)