Key features of the Payments Banks

The objective of setting up of payments banks is to provide fully networked and technology driven modern transaction service to the unbanked. Payment banks offer internet banking, bill payment service, remittance service through various channels, sell mutual funds, insurance, pension etc. They can act as Business Correspondent (BC) of other banks subject to compliance of RBI guidelines on BCs. Further, payment banks may issue prepaid cards (virtual cards) ATM/debit cards. But they cannot issue credit cards or undertake any other lending activities.

In addition to providing above modern transaction services, payments banks are expected to facilitate migrant labour workforce, low income households, small businesses, and other unorganised sector entities, as a part of financial inclusion measure. Thus, payment banks are allowed to provide limited banking service to the unbanked general public. Payment banks can hold a maximum demand deposit of Rs.100,000 per individual customer. NRI’s deposits cannot be accepted. The minimum 75% of demand deposits collected from the public is required to be invested in eligible Government securities/treasury bills with maturity up to one year so as to maintain Statutory Liquidity Ratio (SLR). The residual balance of maximum 25 per cent can be held in current and time/fixed deposits with other scheduled commercial banks for operational and liquidity management purposes. The payments banks need to set up a high powered Customer Grievances Cell to handle customer complaints.

Payment banks can be established by existing non-bank Pre-paid Payment Instrument (PPI) issuers;  other entities such as individuals / professionals; Non-Banking Finance Companies (NBFCs), corporate Business Correspondents(BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks. A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. However, scheduled commercial bank can take equity stake in a payments bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.Promoter/promoter groups should be ‘fit and proper’ with a sound track record of professional experience or running their businesses for at least a period of five years in order to be eligible to promote payments banks.

The minimum paid-up equity capital for payments banks shall be Rs.100 Crore. The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business. 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.

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Latest update: RBI on 19th August 2015, in principle cleared following 11 entities to setup payment Banks

1.Aditya Birla Nuvo, 2. Airtel M commerce, 3. Cholamandalum Distribution, 4.Department of Posts, 5.Fino PayTec, 6.National securities Depository Limimited (NSDL),7.Reliance Industries, 8.Dilip Sanghvi, IDFC, Uninor, 9.Vijay Shekar Sharma (Promoter of Paytm), 10.Tech Mahindra, 11.Vodafone Mpesa