How payment banks will affect our life ?
On August 19, 2015 the RBI had granted in principle approval to 11 entities for establishment of payment banks, which include established ones like Reliance Industries, Aditya Birla, Tech Mahindra, Airtel and Vodafone. The ‘in-principle’ approval shall be valid for a period of 18 months during which the applicants shall have to comply with the stipulated guidelines and fulfil other conditions as may be laid down by the RBI.
What is payment bank?
A payments bank is a type of non-full service niche bank in India. It can only receive deposits and provide remittances. It cannot carry out lending activities. Payment banks are created to help a country to reach its financial inclusion targets. It is expected of payment banks to target migrant labourers, low-income households and small businesses by offering small savings accounts and remittance services with a low transaction cost.
How payment banks will benefit people?
RBI has granted in-principle approval to entities which have experience in different sectors and which possess different capabilities so that different models could be tried. All selected entities would have wide reach and adequate technological and financial strength to service customers across the country. Their likely impact on Indian banking system is listed out hereunder:
Cash less banking:
The 11 approved entities include phone companies which have large distribution networks throughout India, including in rural remote locations. Payment banks will provide last mile connectivity by providing services to people living in a rural areas where there are no bank branches. The phone companies will essentially rely on technology to provide banking services to all customers, using mobiles as the vehicle of banking which will help them to reach people living in remote areas. They will be able to easily convert cash into virtual money and vice versa. They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a simple phone. They can transfer money directly to bank accounts at nearly no cost acting as a part of the gateway that will connect with banks.
Cheaper banking services:
Cheaper baking services will be available for people as banking costs will come down due to intense competition in banking sector after introduction of 11 new entities as payment banks. At present private banks like HDFC Bank, ICICI Bank and Axis Bank make huge profits from their low-cost current and savings bank accounts. Now a big chunk of their banking services will move to payment banks, who will offer higher savings bank rates of 5 to 7 %1.
Facilitation of Government’s subsidy schemes:
Government subsidies like subsidy on LPG, kerosene or food and fertiliser will be routed through payment banks which would have a greater reach.
What services payment banks can render?
• Accept demand deposits of upto Rs. 100,000 per individual customer.
• Issue ATM/debit cards usable on ATM networks of all banks.
• Make payments and provide remittance services through various channels.
• Act as a Corporate Business Correspondents of another bank (BCs), subject to the RBI’s guidelines on BCs.
• Distribution of mutual fund units and insurance products, etc What activities payment banks cannot undertake
• The payments bank cannot undertake lending activities; they cannot offer loans and cannot raise a Page 1 deposit exceeding Rs. 1 lakh
• Payments banks cannot issue credit cards.
RBI Compliance norms for Payment Banks
• Statutory Compliaces: Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, Payment banks are required to invest minimum of 75 % of its “demand deposit balances” in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills with maturity upto one year and hold maximum of 25 % in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management
• Minimum paid-up capital requirement: The minimum paid-up equity capital for payments banks shall have to be Rs. 100 crore. The payment banks should have a leverage ratio of not less than 3 %, i.e., their outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
• Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such payment banks shall at least be 40 % for the first five years from the commencement of their business.
• Foreign shareholding: The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time-to-time
• Technology Driven Operations: The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms.
• Customer’s Grievance Cells: The bank should have a high powered Customer Grievance Cell to handle customer’s complaints.