Introduction
1. Payment Banks, as per RBI guidelines, are a new category of banks conceptualised to provide efficient banking services to small businesses and low-income households.
2. These banks focus on facilitating financial transactions, including receiving deposits and making payments, but do not undertake lending activities like traditional banks. Maximum Balance: Payment banks are initially restricted to holding a maximum balance of ₹100,000 per individual customer.
3. ATM/Debit Cards: Payment banks can issue ATM/debit cards to their customers.
4. No Credit Cards: However, payment banks cannot issue credit cards.
5. Payments and Remittance Services: Payment banks can provide payments and remittance services through various channels.
6. Branches in Unbanked Rural Areas: At least 25% of their branches must be in unbanked rural areas.
7. Foreign Ownership: Foreign ownership of payment banks is permitted under Indian FDI guidelines for private banks.
8. Remember that payment banks primarily focus on providing basic banking services, especially to underserved and unbanked populations. They play a crucial role in financial inclusion by offering convenient and accessible services to a wide range of customers.
9. The intent is to leverage technology and digital platforms to ensure the broad reach of banking services, especially in rural and remote areas.
10. Unlock simplicity with Vakilsearch’s RBI Compounding service – streamline your compliance effortlessly. Trust our expertise to navigate RBI regulations smoothly, ensuring seamless Compounding applications.
Scope of Services
· Acceptance of Deposits
Payment Banks are allowed to accept deposits from individuals and small businesses, up to a prescribed limit per customer. These deposits serve as a secure avenue for customers to store their money and earn interest.
· Payments and Remittances
Payment Banks facilitate transactions such as remittances, utility bill payments, and other payments using digital channels. They offer a seamless platform for customers to conduct their financial transactions efficiently.
· Prepaid Instruments
Payment Banks can issue prepaid payment instruments like prepaid wallets, mobile wallets, and prepaid cards, enabling easy transactions and payments without the need for a traditional bank account.
· Internet Banking
RBI guidelines permit Payment Banks to provide internet banking services to their customers, enhancing accessibility and convenience for account holders to manage their finances online.
Other Services
Apart from the aforementioned services, Payment Banks can offer other non-risk-bearing financial products such as mutual funds, insurance, and pension products in partnership with other financial institutions.
Operational Restrictions
· No Lending Activities
One of the primary operational restrictions imposed on Payment Banks is that they are prohibited from engaging in any form of lending activities. Unlike traditional banks, they cannot issue loans or credit to customers.
· Deposit Limit
RBI has set a cap on the maximum deposit amount that a customer can hold in a Payment Bank. This measure ensures that the bank focuses on providing basic banking services and does not accumulate excess funds beyond the specified limit.
· Investment Restrictions
Payment Banks are subject to restrictions regarding where they can invest their funds. They need to follow guidelines set by the RBI to maintain the safety and liquidity of their investments.
Compliance Requirements
· Know Your Customer (KYC) Compliance
Payment Banks must strictly adhere to KYC norms when onboarding customers. This involves comprehensive verification of customer identities to mitigate the risks associated with money laundering and fraudulent activities.
· Anti-Money Laundering (AML) Compliance
Payment Banks need to implement robust AML measures to prevent money laundering and financing of illegal activities. Regular monitoring and reporting of suspicious transactions are key aspects of AML compliance.
· Risk Management and Cybersecurity
RBI mandates Payment Banks to establish a robust risk management framework and cybersecurity measures to protect customer data and ensure the security of transactions. This includes regular audits and security assessments.
· Reporting and Audit
Payment Banks are required to submit periodic reports to RBI regarding their operations, financials, and compliance with regulatory guidelines. Additionally, they are subject to regular audits to ensure adherence to the prescribed norms.
Competition and Collaborations
· Competitive Landscape
RBI encourages healthy competition among Payment Banks, promoting innovation and improved services. Payment Banks need to strategise and differentiate themselves in a crowded market to gain a competitive edge.
· Collaborations and Partnerships
Payment Banks have the option to collaborate with other financial institutions, fintech companies, or government agencies to enhance their service offerings, expand customer base, and diversify revenue streams.
Technology Infrastructure and Security
· Robust Technology Infrastructure
Payment Banks are required to maintain a resilient technology infrastructure to ensure seamless operations, especially in a digital environment. This involves investing in state-of-the-art systems and networks.
· Data Privacy and Security
RBI emphasises the importance of safeguarding customer data and privacy. Payment Banks must adhere to stringent data security measures and comply with applicable laws and regulations.
Financial Literacy and Education
· Promoting Financial Literacy
Payment Banks are encouraged to play an active role in educating customers, particularly in rural and underprivileged areas, about financial products, services, and responsible financial behaviour.
· Awareness Campaigns
Payment Banks can organise awareness campaigns to inform people about the benefits of banking services, digital transactions, and the importance of savings and investments.
The Reserve Bank of India (RBI) plays a pivotal role in shaping the landscape of financial services in the country. One of its important initiatives is the establishment of Payment Banks, aimed at promoting financial inclusion and providing basic banking services to the unbanked and underbanked population. RBI has laid down these specific guidelines to regulate and guide the operations of Payment Banks.
Here is an article from Business Lines, where Payment Banks have requested for more privileges and lending rights.
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Payments banks seek RBI nod for small-value deposits and loans
Payments banks (PBs) may approach the Reserve Bank of India to allow them to take small-value fixed as well as recurring deposits, as garnering low-cost savings bank (SB) deposits is proving an uphill task given the high-interest rates being offered by commercial banks on term deposits.
These banks are also likely to make a pitch to allow them to offer small-ticket loans to individuals and micro- and small enterprises (MSEs) to enhance their viability, said sources aware of recent deliberations on the road ahead for PBs.
The need for enhancing the scope of activities of these ‘vertically differentiated banks’ comes in the backdrop of five out of the 11 applicants who were given in-principle approval to start a PB in 2015, either not commencing operations or voluntarily giving up their certificate of registration.
Now, only six PBs — Airtel Payments Bank, Fino Payments Bank, India Post Payments Bank, Jio Payments Bank, NSDL Payments Bank, and Paytm PB — are operational.
Out of these six, the RBI has imposed severe restrictions on Paytm PB due to “persistent non-compliances” and continued material supervisory concerns at the bank. Fino PB has applied to the RBI to convert into a small finance bank.
‘ALLOW FD AND RD’
“Commercial banks’ low-cost CASA (current account, savings account) deposits have come down over the last few quarters as customers prefer investment in fixed deposits, non-convertible debentures, mutual funds, equities, etc., which offer better returns. Given this situation, there is no way PBs can stop the decline in their savings bank (SB) deposits. “So, the only way to stop deposit outflow is to allow us to offer FDs and recurring deposits (RDs),” said a senior PB official. Simultaneously, allowing PBs to offer small-ticket loans in select segments, such as individuals and MSEs, which will fetch a higher yield on advances, will help in servicing high-cost FDs and RDs.
‘INCREASE THE CAP’
These vertically differentiated banks also want the RBI to increase the maximum end-of-day balance a customer can maintain with them from ₹2 lakhs to ₹5 lakhs in sync with the increase in deposit insurance cover.
PBs provide payments and remittance services to the migrant labour workforce, lowincome households, small businesses, other unorganised sector entities, and other users. These banks can only accept demand deposits with a maximum balance of ₹2 lakhs per individual customer.
They cannot undertake lending activities but distribute financial products like mutual fund units and insurance products, etc., and act as business correspondents of another bank.
As of March 2023, the six operational PBs collectively had deposits (predominantly SB deposits) and investments (mostly in government securities) aggregating ₹12,174 crores (₹7,829 crores as of March 2022) and ₹12,064 crores (₹9,937 crore), respectively, per RBI data. Five PBs were profitable in 2022-23.
Courtesy: Business Lines. Dt. 23rd Feb. 2024.
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