Monday, 13 February 2017

Important notes about Payment Bank | Banks in India

Payment Banks

With a need of financial inclusion in the country, RBI and central government has taken many steps at different times. Taking a further step, RBI gave differentiated licenses for specific activities to new set of banks named Payment Banks and Small Banks.

What is a Payment Bank?

Payment Banks are banks which will reach their customers mainly through mobile phones rather than traditional bank branches. They can be thought of as mobile wallets. However, they can also have physical branches. Not anyone can ask for license for these banks. One has to fulfill some conditions; one of them being is that the minimum capital requirement is Rs 100 crore to open up a Payment Bank.

What is the need of these specific purposed banks?

The poorer citizens of the country who transact only in cash and do not have bank accounts are the targets of these Payment Banks. They will target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.

Functions of Payment Banks:

  • They offer only current account and savings account in which deposit only up to Rs 1 lakh per customer is permitted.
  • The savings account will earn interest also like a normal savings bank account does.
  • Unlike a regular bank, they cannot lend money to people and cannot issue credit cards also. However ATM or debit card can be issued.
  • They can be integrated with your savings bank accounts via IMPS and NEFT transfers.
  • They cannot accept NRI deposits, which makes sense considering the goal of financial inclusion.
  • They can enable transfers and remittances through a mobile phone.
  • They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a phone.
We read above that these banks cannot lend money, so from where will they get profit?
The payment banks are allowed to invest the customers deposit into government securities from which they can raise money.

How will Payment Bank reach their customers in far flung areas?

  • We studied above that Payment bank will reach through mobile phones. There is mobile phone coverage in every small place where a traditional bank is uneconomical to open, somobile phones will provide a low-cost platform for the basic banking activities.
  • Further, bank correspondents can be employed to make reach the services of Payment Bank to every citizen in villages.
  • The recharge shops can play a crucial role in Payment bank expansion. For example: Anybody sitting in any area of country can add money to wallet and people can debit the money from recharge shop owner or can debit the money from ATMs (if they can) also.
  • So now a mobile wallet can be used for transactions like we do before and will earn interest also.
In August 2015, RBI gave nod to 11 entities to start Payment Bank. These are -Aditya Birla Nuvo Ltd, Airtel M Commerce Services Ltd, Cholamandalam Distribution Services Ltd, Department of Posts, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shantilal Shanghvi (Sun Pharmaceuticals), Vijay Shekhar Sharma (Paytm), Tech Mahindra Ltd, and Vodafone m-pesa Ltd.
In September 2015, Vijay Shekhar Sharma, Paytm founder announced to open country’s first Payment Bank.