On 19th August, 2015 Reserve Bank of India announced licence to 11(Eleven) companies, out of 42 companies who had applied, for setting up of Payment Banks in India for spreading banking specially in un-banked and under-banked areas of the country.
The grant of licence shall be initially for period of 18 months after which, performance of each company shall be reviewed. The following companies or groups have been granted licence to set up Payment Banks:
- Reliance Industries ( Mukesh Ambani Group)
- National Securities Depository Limited ( NSDL)
- Vodafone M-Pesa
- Cholmandalam Distribution Services
- Tech Mahindra
- Post & Telegraph Department
- Aditya Birla Nuvo
- Airtel M-commerce
- Fino Paytech
- Sun Pharma
Now the question is what a “Payment Bank” is –
A Payment Bank is the concept given by Nachiket Mor. Committee appointed by RBI last year for widening the scope of financial inclusion by bringing small businessmen and low income household in banking fold for assisting them for smaller financial activities.
A “Payment Bank” is a type of Mobile Currency or we may call it a Digital Wallet which can be used for our small payments, utility bills, shopping bills, booking of movie tickets etc. Here the Payment Bank may be a super market chain, Non Banking Financial Company, Post Office, co-operative stores, mobile service provider store etc.
“Payment Banks” have been allowed to take initial deposit (only in the shape of current account and savings accounts) of Rs. 1.00 Lakhs from individuals and pay interest on the deposit balance at the rate to be announced by Reserve Bank of India separately for such Banks. No lending/ providing loans are allowed. Only debit cards can be issued whereas credit cards are not allowed to be issued. Payment Banks are not to be involved in credit risk rating since they are only allowed to make investment either in Government securities or treasury bills for less than one year maturity. The Payment Banks can only charge commission for their services, which shall be considered to be their sole earning from their customers. The Payment Banks are to maintain CRR (Cash Reserve Ratio) like other scheduled commercial Banks. The deposit of individuals shall be covered by insurance from DICGC (Deposit Insurance and Credit Guarantee Corporation – a set up of Government of India)
Reserve Bank of India has also defined the corporate structure where each Payment Bank shall have a minimum of Rs.100.00 Crores capital and shall maintain a capital adequacy ratio of 15 %. The Payment Banks are allowed to keep liabilities, up to 20 times their networth. The promoters’ contribution to the capital shall not be less than 40 % for the first 5 years, thereafter 30 % for next 5 years and after that 26 %, from the commencement of their business. A Commercial Bank can have its subsidiary as a Payment Bank.
Bigger Banks have started their tie-up arrangements with these Payment Banks. A new era is being considered as a revolution in the Banking Industry. There may be chances that smaller Banks may find it difficult to run or may come out stronger, the time will decide.
Author: Lalit Virmani (Author is a Retired Senior Banking Executive)
You may contact the author at firstname.lastname@example.org