All you need to know about payments banks

Reserve Bank of India (RBI) on Wednesday approved 11 entities to set up payments banks in India.

The 11 entities include some big names as well, such as Reliance Industries, Bharti Airtel, Vodafone and Aditya Birla Nuvo.

What are payments banks?

-Payments banks are a non-full service bank in India. The main objective of these banks is to accelerate financial inclusion.

-These are specialised banks that provide services to small businesses, migrated labour and low income households.

-Payments banks will provide small savings accounts to its customers.

-Payments banks will also allow mobile firms, supermarket chains and others to cater to small scale businesses.

-Payments banks do not carry lending activities. This means that the banks are not allowed to give credits to its customers. 

-Such banks will only be allowed to accept deposits and offer payment services.

-These banks have to use 'Payments Bank' in its name which will differentiate it from other banks.

-Payments banks cannot form subsidiaries or undertake any non-banking activities.

-These banks are mainly based in rural parts of India, specifically areas which are unbanked.

-The deposits made in payments banks need to be invested in government bonds.

Activities and regulations of payments banks:

-Payments banks can hold a maximum balance of Rs 1,00,000 per customer.

-These banks can only issue debit and ATM cards. They cannot issue credit cards to its customers.

-Such banks should have a minimum paid-up equity capital requirement of Rs 100 crore.

-Under payments banks, the stake of a promoter should be minimum 40% for the first five years.

-As per the rules of the Foreign Direct Investment (FDI) these banks can allow foreign share holding.

Background of payments banks:

The RBI first came out with the guidelines of new banks in private sectors in 2013 and announced the licencing of such banks on April 2, 2014.

It granted 'in-principle' approval to two applicants wherein they were asked to set up new banks within 18 months in private sectors. 

The RBI had first announced its decision about the payments banks in 2013 where it said that through payments bank it intends to use the learning experience from this licencing exercise to revise guidelines appropriately. 

What's new?

The latest buzz about payments banks is that the RBI has on Wednesday granted 'in-principle'  nod to 11 entities. These 11 companies are:
1. Reliance Industries Ltd, 2. Aditya Birla Nuvo Ltd, 3. Airtel M Commerce Services Ltd, 4. Vodafone m-pesa Ltd, 5. Tech Mahindra Ltd, 6. Dilip Shanghvi, 7. Fino PayTech limited, 8.National securities depository limited, 9. Vijay Shankar Sharma,10. Department of Posts, and 11. Cholamandalam Distribution Services Ltd.

Post the announcement, Finance Minister Arun Jaitley expressed his content and said that payments banks is an important step for the expansion of rural banking.

"Payments bank will ensure more money comes into banking system. Various banks are looking at increasing their rural reach, including big banks like SBI, payments banks will help them realise this," Jaitley said.

Furthermore, Vodafone India and Bharti Airtel thanked RBI for giving them the licence to set up payments bank.

Sunil Sood, MD and CEO, Vodafone India said, "The licence will enable it to build on this further and offer a more comprehensive portfolio of banking and financial products and services, accelerating India's journey into a cashless economy.

Airtel said that they will help bring miilions of unbanked citizens into the banking sector.

(With Agencies)