CONCEPT – PAYMENT BANKS AND REGULATOR

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CONCEPT – PAYMENT BANKS AND REGULATOR

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• What are Payments banks? This is a new model of banks as built by the Reserve Bank of India (RBI). These can accept a restricted deposit, which is currently limited to Rs.1 lakh per customer. They cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks.
• Objective: According to the RBI guidelines for licensing of payments banks, the main objective of a payments bank is to enhance financial inclusion. This is expected to be done by providing small savings accounts, payments and remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.
• Starting 2015: In August 2015, RBI had given in-principle approval to 11 entities to start payments bank in India, which included the department of posts. Airtel Payments Bank was the first one to launch. At present, other payments banks like Paytm Payments Bank, Fino Payments Bank and Aditya Birla Payments Bank are also operational. IPPB had started operations at two pilot branches in January 2017.
• Other services: Payments banks can issue services like ATM cards, debit cards, net-banking and mobile-banking. Bharti Airtel set up India's first live payments bank.
• The background: On 23 September 2013, the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, headed by Nachiket Mor, was formed by the RBI. Among its various recommendations was the formation of a new category of bank called payments bank.
• India Post: Of the many operating in India now, the India Post Payments Bank (IPPB) became operational on 1 September 2018 and has branches in 650 districts and 3,250 access points across the country. By the end of 2018, all 155,000 post offices in the country were expected to be linked with the IPPB system.
• Differences between regular banks and payment banks: A payments bank aims to further financial inclusion, especially through savings accounts and payments services. Accordingly, a payments bank is not allowed to give any form of loan or issue a credit card, which is also a form of unsecured personal loan. Even in case of savings accounts, a payments bank has certain restrictions. Customers can open a savings account with deposits of only up to Rs.1 lakh, which is also the maximum balance allowed. These banks currently offer interest rates similar to that being offered by regular banks. As per RBI guidelines, payments banks can’t accept fixed or recurring deposits.
• Small banks are different: The list of differences is explained later.
• Regulatory work: The RBI wants itself to regulate all Payment Banks of India, while the GoI (October 2018) proposed an independent regulator.

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