In India, we come across different types of banks which are licensed by RBI for different purposes and for catering to different customers. Differentiated banks are financial institutions that cater to the demands of a certain demographic group. Differentiated banks in India include Small Finance Banks and Payment Banks. Here are few differences between Small Finance Banks and Payments Bank in India.
What are Small Finance Banks?
Small finance banks are financial institutions that provide financial services to the country's underserved and unbanked areas. They are registered as a public limited company under the Companies Act, 2013. These banks, like other commercial banks, can engage in all basic banking activities, such as lending and accepting deposits.
Small finance banks will be established with the goal of increasing financial inclusion by (1) providing savings vehicles and (2) providing credit to small businesses, small and marginal farmers, micro and small industries, and other unorganised sector entities through high-tech, low-cost operations. The NachiketMor committee on financial inclusion suggested SFBs.
Small Finance Banks can't extend big loans. Cannot float subsidiaries or trade in high-tech products.
List of Small Finance Banks In India
- Ujjivan Small Finance Bank.
- Janalakshmi Small Finance Bank.
- Equitas Small Finance Bank.
- A U Small Finance Bank.
- Capital Small Finance Bank.
- ESAF Small Finance Bank.
- Utkarsh Small Finance Bank.
- Suryoday Small Finance Bank.
- Fincare Small Finance Bank.
In India, small finance banks are a form of specialty bank. Small finance banks are permitted to perform basic banking services such as deposit acceptance and lending. The goal is to bring financial inclusion to parts of the economy that aren't supported by other banks, such as small businesses, small and marginal farmers, micro and small businesses, and unorganised sector entities.
What are Payments bank?
Payment banks were established to promote financial inclusion by offering; "modest savings accounts and payments/remittance services to migratory labour workforce, low-income households, small enterprises, other unorganised sector entities, and other users."
The goal of establishing payments banks is to increase financial inclusion by providing (1) modest savings accounts (2) payments/remittance services to migratory workers, low-income families, small enterprises, other unorganized sector entities, and other users.
Customers will not be able to borrow from them, and they would be forced to invest their money in government bonds and bank deposits.
List of Active Payments Bank in India
Airtel Payments Bank.
India Post Payments Bank.
Fino Payments Bank.
Jio Payments Bank.
Paytm Payments Bank.
NSDL Payments Bank.
The Reserve Bank of India conceptualized Payments Banks as a new type of bank in India (RBI). These banks can accept a restricted deposit, which is now capped at Rs 200,000 per person but could be raised in the future. These banks are unable to provide loans or credit cards. Banks of this type can handle both current and savings accounts. Payments banks can provide ATM and debit cards, as well as online and mobile banking.
Difference Between Small Finance Banks and Payments Bank
|Difference||Small Finance Bank||Payments Bank|
|Promoter's Share||40% in the beginning Then, over the next 12 years, it can be gradually reduced to 26%.||40% for the first five years from the date of business start-up.|
|Capital Required||Min Paid Up capital should be 100 Cr||Min Paid Up capital should be 100 Cr|
|Customer Reach||Customers are reached through the company's branches.||Customers are reached through Mobile banks|
|Demand Deposit||Can accept demand deposits as savings deposits are accepted, with no set limit.||Can accept demand deposit like savings deposit only upto Rs. 2 lakh|
|Time Deposit||Can accept Time Deposit such as Fixed Deposit and Recurring Deposit||Can't accept Time Deposit such as Fixed Deposit and Recurring Deposit|
|Loan||Can offer small loans||Cannot offer loan|
|Credit Card||Can issue credit cards||Can't issue credit cards|
|Branches||25% of branches must be in rural areas for the first three years.||Must have 25% branches in rural areas|
Major differences between Small Finance Banks and Payments Banks
Prepaid card issuers, telecom firms, NBFCs, business correspondents, retail chains, corporates, real estate sector co-ops, and PSUs can all promote Payments Banks. Individuals having at least 10 years of expertise in finance, NBFCs, local area banks, and other small finance banks promote them.
In Payment Banks, the promoters' share must be 40% for the first five years from the establishment of the firm, however in Small Finance Banks, the original 40% share can be gradually reduced to 26% over a period of 12 years.
Payment Banks can only accept demand deposits and hold up to Rs. 2 lakh per individual, whereas Small Finance Banks can accept all types of deposits, including FDs, RDs, Savings, and Current Accounts.
Mutual funds, insurance policies, and other low-risk financial products are allowed to be distributed by Payment Banks. Small finance banks must ensure that loans and advances totaling less than Rs. 25 lakh account for at least half of their loan portfolio.