Payment
Bank- A New Feather in Indian Banking System.
Dr. Sankar Thappa
As per Section 5(b) of the Banking Regulation Act
1949: “Banking” means the accepting, for the purpose of lending or investment,
of deposits of money from the public, repayable on demand or otherwise, and withdrawal
by cheque, draft, order or otherwise.”
Scheduled Commercial Banks in India are categorised
into five different groups according to their ownership and / or nature of
operation. These bank groups are:
(i) State Bank of India and its Associates, (ii) Nationalised Banks, (iii) Regional Rural
Banks, (iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in
the private sector).
At present in India
the Commercial banks comprise 27 public sector banks, 20 private, 44 foreign, 4
local area banks and 56 Regional Rural Banks.
Along with these
existing banks a new feather is going to join in the Indian banking system is Payment
bank. The
primary objective of setting up of payments banks is 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, by enabling high
volume-low value transactions in deposits and payments / remittance services in
a secured technology-driven environment.
The Reserve Bank of India (RBI) recently gave an
"in-principle" nod to 11 entities for setting up payment banks. The list
of 11 entities is as follows:
1.
Reliance Industries Ltd 2.
Aditya Birla Nuvo Ltd 3. Airtel M
Commerce Services Ltd. 4. Vodafone m-pesa Ltd
5. Tech Mahindra Ltd 6. Shri Dilip
Shantilal Shanghvi ,7. Fino PayTech limited
8.National securities depository limited
9. Vijay Shankar Sharma 10.
Department of Posts 11. Cholamandalam
Distribution Services Ltd.
What is a payment bank?
A Payment bank is a type of non-full
service niche bank in India. A bank is licensed as a payment bank can only
accepts deposits and provides remittances.
It is not allowed for lending activities.
The
payments bank will be registered as a public limited company under the
Companies Act, 2013, and licensed under Section 22 of the Banking Regulation
Act, 1949, with specific licensing conditions restricting its activities mainly
to acceptance of demand deposits and provision of payments and remittance
services. It will be governed by the provisions of the Banking Regulation Act,
1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999;
Payment and Settlement Systems Act, 2007; Deposit Insurance and Credit
Guarantee Corporation Act, 1961; other relevant Statutes and Directives,
Prudential Regulations and other Guidelines/Instructions issued by RBI and
other regulators from time to time. The payments bank will be given scheduled
bank status once it commences operations, and is found suitable as per Section
42 (6) (a) of the Reserve Bank of India Act, 1934.( RBI, Guidelines)
Background of Payment Bank
In September 2013, the RBI constituted a committee to study
‘Comprehensive financial services for small businesses and low income
households’ headed by Dr. Nachiket Mor. The focus of the committee was to
recommend innovative solutions to the RBI to accelerate financial inclusion in
unbanked and under-banked sections of the society in sustainable and cost
effective way.
The
committee submitted its report to the RBI report in January 2014. One of the
key recommendations of the committee was to introduce specialized banks
(‘Payments Bank’) to cater to the lower income groups and small businesses. (Deloitte)
Characteristics:
Status: Payment banks are a non-full service banks,
whose main objective is to accelerate financial inclusion.
Name of the Bank: These banks have to use the word 'Payment
Bank' in its name which will differentiate it from other banks.
Minimum Capital: They will need to have a minimum paid-up
equity capital requirement of Rs 100 crore.
Restriction on Lending: Payment banks aren't
allowed to engage into lending activities.
Issue of Debit/Credit Card: While payment banks
can issue debit and ATM cards, it is not allowed to issue credit cards to its
customers.
Subsidiary: Payment banks cannot form subsidiaries or
undertake any non-banking activities.
Promoter Stake: Under payments banks, the stake of a promoter
should be minimum 40% for the first five years.
Activities of Payment Bank
The payments bank will be set up as a
differentiated bank and shall confine its activities to further the objectives
for which it is set up.
i.
Acceptance of demand deposits, i.e.,
current deposits, and savings bank deposits from individuals, small businesses
and other entities, as permitted. No NRI deposits should be accepted. payments bank will initially be restricted to
holding a maximum balance of Rs. 100,000 per individual customer.
ii.
Issuance of ATM / Debit
Cards. Payments banks, however, cannot issue credit cards.
iii.
Payments and remittance
services through various channels including branches, Automated Teller Machines
(ATMs), Business Correspondents (BCs) and mobile banking.
iv.
Internet banking - The RBI
is also open to payments bank offering Internet banking services.
v.
Functioning as Business
Correspondent (BC) of another bank – A payments bank may choose to become a BC
of another bank, subject to the RBI guidelines on BCs.
vi.
As a channel, the payments
bank can accept remittances to be sent to or receive remittances from multiple
banks under a payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.
vii.
Payments banks will be
permitted to handle cross border remittance transactions in the nature of
personal payments / remittances on the current account.
viii.
Payments banks can undertake
other non-risk sharing simple financial services activities, not requiring any
commitment of their own funds, such as distribution of mutual fund.
ix.
The payments bank may
undertake utility bill payments etc. on behalf of its customers and general
public.
Difference between Payment Bank and Commercial Bank
1) Lending
A payment bank is not allowed to lend, Whereas commercial banks in India can lend.
2) Maximum Limit deposit
Payment banks can collect deposits upto Rs 1 lakh only. Commercial banks do not have any such restriction.
3) Issue credit cards
Payment banks are cannot
issue credit cards, but they are allowed to issue debit cards.
Commercial banks can issue both.
4) Minimum capital
Payment bank should have a
minimum capital of Rs 100 crores. The promoters have to contribute not less
than 40 per cent to the capital. Capital of commercial banks is way higher and
their balance sheet size is enormous.
5) Foreign holding in payment
banks
The foreign holding in payment banks would follow the same policy
as is currently prevalent for FDI in the banking sector at the moment.
6) Distribution of
financial products
Payment bank can engage in the distribution of financial products
like mutual funds schemes, insurance etc. Commercial banks to can act as
intermediaries to serve the needs of financial products of individuals.
Payment bank and North East:
According
to CRISIL the east, north-east and central India offer a natural habitat for
payments banks because of under-penetration of formal banking in these regions.
Eight of 17 states in this geography have a CRISIL Inclusix index score below
40, compared with the all-India average of 50.1 as on March 31, 2013.The index
measures financial inclusion on three parameters – branch penetration, deposit
penetration and credit penetration. (Crisil press release dt 21st Aug,2015).
Hope the objective of
providing the banking services to unbanked people in the country would be
fulfilled by the payment bank and would be able to contribute towards the growth of the economy in future.
