Payment Banks are a new model of banks conceptualised by the Reserve Bank of India (RBI). These banks can accept a restricted deposit which is currently limited to INR 1 lakh per customer and may be increased further. These banks cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks. Payments banks can issue services like ATM cards, debit cards, online banking and mobile banking. Airtel has launched India’s first live payments bank. Paytm is the second such service to be launched in the country
Payment Banks | Key facts
- Capital requirement: The minimum paid-up equity capital for payments banks is Rs. 100 crore.
- The payments bank should have a leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
- Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40% for the first five years from the commencement of its business.
- Foreign shareholding: The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
- Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75% of its “demand deposit balances” in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
Payment Banks | Scope of activities
- Payments banks will mainly deal in remittance services and accept deposits of up to Rs 1 lakh.
- They will not lend to customers and will have to deploy their funds in government papers and bank deposits.
- The promoter’s minimum initial contribution to equity capital will have to be at least 40% for the first five years.
- They can accept demand deposits.
- Payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer.
- Can issue ATM/debit cards but not credit cards.
- Can carry out payments and remittance services through various channels.
Payment Banks | Why is it not a feasible idea?
- First, these entities can’t undertake any lending businesses and the income stream is initially restricted to remittances. Eventually, they can cross-sell banking products through their reach and earn a fee. But neither of these two streams of revenue are high-margin businesses.
- RBI has put in place strict rules on how these banks can deploy the deposits they garner. 75% has to go into government securities. This limits their ability to earn from the deposit base as well. Garnering a strong deposit base in the first place will be a challenge as well. Besides, if these banks want to steal customers away from banks, they may have to offer more than the 4% interest rate that banks do. But to do that, payment banks need to be able to earn enough on deposits as well.
- Over the last few years, large banks, including private lenders, have significantly expanded their networks in rural areas. This means that these markets are no longer wide open for new business with limited competition. Banks are offering most services that payments banks can and hence, for payments banks to offer a new and differentiated proposition will not be easy.
Payment Banks | Significance post demonetisation
- Cashless economy is more of a mindset and acceptance. 99% of the population is linked with the Aadhar Number based on which a person can interact with the bank.
- Digital cash gives convenience and lot of people have not experienced the advantages of digital cash.
- In most of the rural households, mobile phones are registered with the name of the male member thus giving them more access to e- transactions. There is a fair chance for Government here to provide cell phones to women, make them aware and since most of them have an Aadhar Number, there is a way to include them directly into the economy with a payments bank account.
- Migrant labourers move from one spot to another. Their employers often hold them back saying their payments will be done next month in cash. This unfair advantage to the employers can be nullified through the use of digital payments.