What are payments banks, here’s all you need to know

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New Delhi | Updated: August 21, 2015 1:00:39 PM

Payments banks will receive deposits and provide remittances to the customers. They can also issue ATM/debit cards.

Payments bankPayments banks will receive deposits and provide remittances to the customers apart from selling insurance and mutual funds. They can also issue ATM/debit cards. (Illustrations: Shyam)

Raghuram Rajan-led Reserve Bank of India (RBI) on Wednesday gave nod to 11 entities including Airtel, Sun Pharma, Paytm, Reliance Industries, Tech Mahindra, Vodafone among others for setting up of non-lending payments banks. Brought into the India system as a part of the financial inclusion drive, these entities sense a huge opportunity in payments bank’s business model and would leverage on technology.

Here’s is all you need to know about payments banks:

What are payments banks?

Payments banks will be set up as a differentiated bank and shall confine their activities to acceptance of demand deposits, remittance services, Internet banking and other specified services. It can issue ATM/debit cards, however, it cannot carry out lending activities and thus wouldn’t be issuing credit cards.

The ‘in-principle’ approval granted to these banks will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank.

12 things to know about payments banks:

1) Customers can deposit only up to Rs 1,00,000

2) Payments bank can issue ATM/debit cards but not credit cards

3) Payments and remittance services through various channels can be done

4) Customers will be able to buy insurance and mutual funds

5) Bank would not carry out lending activities.

6) With this, the network of 1,54,000 post offices (including 1,30,000 rural post offices) will be offering banking services to the masses in the country.

7) Payments banks are targeting migrant labourers, low income households, small businesses, and other unorganised sector entities.

8) Initial capital required for a Payments bank is Rs 100 crore

9) Eligibility: Existing pre-paid payment instrument issuers, individuals, professionals, NBFCs, corporate business correspondents, telecom companies, super-market chains, real estate sector cooperatives that are owned and controlled by residents and public sector entities may apply.

10) Promoter’s contribution initially must be 40% for the first 5 years. For foreign holding, it is up to 74% of paid-up capital, on a par with private banks.

11) The banks must maintain CRR, minimum 75% of demand deposits in government bonds of up to one year and maximum 25% in current and fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

12) 41 applicants were in the race for payment bank licence, only 11 entities got the RBI nod for in-principle licence. Here is the list of these entities and with whom they are partnering for payments bank.

Aditya Birla NuvoKumar BirlaIdea Cellular (49% stake)
Airtel M CommerceSunil MittalKotak Mahindra (19.9%)
Cholamandalam DistMurugappaSearching
Dept of PostsCentral Govt
Fino PayTech24 banks and FIs
NSDLBanks and FIsTo go alone
Reliance IndustriesMukesh AmbaniSBI (30% stake)
Dilip ShanghviSun PharmaYet to announce
Vijay S SharmaPaytmTo go alone
Tech MahindraMahindra groupIn talks with IFC
Vodafone m-pesaVodafone India

The prominent names among 30 applicants which lost out in the race a licence include NSE Strategic Investment Corporation Limited promoted by the National Stock Exchange, MG George Muthoot, Videocon d2h and Kishore L Biyani. Payment solutions companies, including Itz Cash Card, Citrus Payment, Smart Payment Solutions, One Mobikwik and Oxigen Services did not make up the grade.

RBI also plans to issue licences for ‘small finance banks’ for which it has received 72 applications. These banks will primarily take up basic banking activities in defined geographies and cater to small business units, marginal farmers, and shop-keepers, among others.

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