Payments Bank

Introduction:

Payments Banks are a distinctive category of banks introduced in India to promote financial inclusion, especially for small businesses and low-income households. Here are key features and regulations associated with Payments Banks:

1. Recommendation and Differentiation:
• Nachiket Mor Committee: The concept of Payments Banks was recommended by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, headed by Nachiket Mor in 2013.
• Differentiated Bank: Payments Banks are established as a differentiated bank, focusing on specific financial services.
2. Deposit Acceptance and Limitations:
• Limited Deposits: Payments Banks can accept a limited amount as a deposit, with the current limit set at ₹1 lakh per customer.
• Eligible Deposits: Deposits mobilized by Payments Banks are covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC).
• Interest on Deposits: Money deposited in Payments Banks earns interest.
3. Deposit Products and Restrictions:
• Permitted Deposit Types: Payments Banks can accept demand deposits, including current deposits and savings bank deposits.
• Restrictions: Payments Banks cannot accept fixed deposits (FDs), term deposits, recurring deposits (RDs), and no NRI deposits are allowed.
4. Operational Activities and Restrictions:
• Lending Restrictions: Payments Banks are not allowed to undertake lending activities.
• Issuance of Cards: Payments Banks can issue ATM/Debit Cards but are not permitted to issue credit cards.
• Investments: Minimum 75% of deposits must be invested in government securities/treasury bills, and a maximum of 25% can be held in current and time/fixed deposits with other scheduled commercial banks.
5. Capital Adequacy and Risks:
• Operational Risks: Payments Banks, exposed to operational risks rather than credit or market risks, must conform to Capital Adequacy Ratio (CAR) norms, different from traditional banks.
6. Services Offered:
• Remittance Transactions: Payments Banks are permitted to handle cross-border remittance transactions.
• Financial Products: They can provide mutual funds and other financial products.
• Electronic Banking: Services include net banking and mobile banking.
7. Infrastructure and Network:
• Network Requirement: Payments Banks should be fully networked from the beginning.
• Branch Distribution: A minimum of 25% of branches must be in unbanked rural areas.
8. Regulatory Framework and Licensing:
• Legal Structure: Payments Banks are licensed under the Banking Regulation Act, 1949, and registered as public limited companies under the Companies Act, 2013.
• Minimum Capital: The minimum capital requirement for Payments Banks is ₹100 crores.

Conclusion:

Payments Banks play a crucial role in expanding financial services to underserved segments, aligning with the broader goal of financial inclusion in India. While their operational scope is limited compared to traditional banks, they contribute significantly to meeting the financial needs of small businesses and low-income households.

Objectives of Payments Banks:

Payments Banks in India are established with specific objectives geared towards enhancing financial inclusion and facilitating timely remittances. The key objectives include:

1. Financial Inclusion:
• Addressing the Unbanked: The primary goal is to promote financial inclusion by providing banking services to segments that are traditionally underserved, including migrant labor, low-income households, small businesses, and other unorganized sector entities.
• Small Savings Accounts: Payments Banks aim to offer small savings accounts, making it easier for individuals from diverse economic backgrounds to access basic banking services.
2. Remittance Services:
• Catering to Migrant Labor: One of the key objectives is to facilitate remittance services, especially for migrant labor. Payments Banks aim to provide a convenient and cost-effective platform for the transfer of funds, contributing to the economic well-being of both the recipients and the regions receiving remittances.
• Reducing Transaction Costs: Payments Banks work towards reducing transaction costs associated with remittances, ensuring that a higher portion of the funds transferred reaches the intended recipients.
3. High-Volume, Low-Value Transactions:
• Technology-Driven Environment: Payments Banks focus on creating a secured, technology-driven environment to enable high-volume, low-value transactions. This approach is particularly beneficial for individuals and businesses engaged in smaller transactions, offering a more accessible and efficient platform.
4. Macro and Microeconomic Benefits:
• Regional Development: Payments Banks contribute to macroeconomic benefits by fostering regional development through the efficient utilization of remittance funds. The inflow of funds into specific regions can stimulate economic growth and development.
• Microeconomic Impact: At the microeconomic level, the timely receipt of remittances provides recipients with the means to boost consumption, invest in opportunities, and improve their overall economic well-being.
5. Cost-Effective Services:
• Reduced Transaction Costs: By focusing on technology-driven solutions and streamlined operations, Payments Banks aim to minimize transaction costs associated with both banking services and remittances. This cost-effectiveness enhances the attractiveness of these banks for individuals with limited financial resources.

In summary, the objectives of Payments Banks revolve around fostering financial inclusion, providing accessible banking services, facilitating efficient remittances, and contributing to both macro and microeconomic development. The emphasis on technology-driven solutions plays a pivotal role in achieving these objectives.