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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.
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.
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.
Here are the services provided by the Payments banks in India:
Here are the services that cannot be provided by the Payment banks:
The procedure to obtain this license is as follows:
The difference between Traditional Banks and Payments Bank is highlighted in the table made below:
Acceptance of deposits
Interest on deposits
Issuance of credit cards
Limit of deposits
Up to 1 lakh per individual
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:
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.
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)