To encourage more transaction and saving accounts for the underserved population without any banking access, the Reserve Bank of India has come-up with Payment Banks which will help to serve those with little or no banking access.
The RBI found that there is also need for remittances as they have both macro-economic benefits for the region receiving them as well as micro-economic benefits to the recipients.
The primary objective of setting up of Payments Banks will be to facilitate small savings accounts and payments or 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.
Who Are Eligible to Open?
Entities such as Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives and public sector entities may apply to set up a Payments Bank.
The main requirement to start a payment bank is a minimum paid up capital of Rs. 100 crores. The operational promoters must own at least 40 per cent which will be locked for the first five years. The foreign shareholding in the bank would be as per the current FDI policy.
The entities and their Promoters/ Promoter Groups as defined in the SEBI Regulations, 2009 should be ‘fit and proper' in order to be eligible to promote Payments Bank.
What Service Payment Banks can Provide?
1) Acceptance of demand deposits,( i.e., current deposits, and savings bank deposits.)
2) Payments and remittance services through various channels including branches, BCs and mobile banking.
3) Internet banking facility
4) Functioning as Business Correspondent (BC) of other banks
5) The Payments Bank cannot undertake lending activities.
6) Since the Payments Bank will not be allowed to assume any credit risk, and if its investments are held to maturity, such investments need not be marked to market and there may not be any need for capital for market risk.
7) A payment bank can sell mutual funds, insurance, pension products etc.
8) They can do remittances abroad (both incoming and outgoing)
9) They can issue prepaid cards or wallets.
10) They have to maintain CRR (4% of all deposits) which lies interest free with the RBI.
As the Payments Bank will have almost zero or negligible risk weighted assets, its compliance with a minimum capital adequacy ratio of 15 per cent would not reflect the true risk. Therefore, as a backstop measure, the Payments Bank should have a leverage ratio of not less than 5 per cent, i.e., its outside liabilities should not exceed 20 times its net-worth / paid-up capital and reserves.
The Payments Bank will operate in remote areas mostly through BCs and other networks. The Payments Bank will be required to have at least 25 per cent of access points in rural centres.