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Payment Banks

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Payments Banks are a new set of banks licensed by the Reserve Bank of India to further financial inclusion by enabling them to provide (i) small savings/ current accounts below Rs. 1 lakh (ii), distribution of mutual funds, insurance products on a non risk sharing basis and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users through high volume-low value transactions in deposits and payments / remittance services using a secured technology-driven environment including issuance of prepaid cards etc.

Payments Banks are differentiated or restricted banks. The Payments Bank cannot set up subsidiaries to undertake non-banking financial services activities (hire purchase, leasing etc.) nor can it undertake lending business. It may choose to become a banking correspondent (BC) of another bank for credit and other services which it cannot offer. Since liquidity is the most important aspect required for such banks they will be bound by the reserve requirement rules of RBI (CRR, SLR etc.). Thus, apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, the payments banks will be required to invest minimum 75 per cent of its "demand deposit balances" in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

The minimum paid-up equity capital for payments banks shall be Rs. 100 crore, of which the promoter’s contribution would be minimum 40 percent of paid-up equity capital for the first 5 years of commencement of the business.

The Payments Bank are proposed to be registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its activities to acceptance of demand deposits and provision of payments and remittance services. It will be governed by the provisions of the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007, other relevant Statutes and Directives, Prudential Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time, including the regulations of the securities market regulator, SEBI, regarding public issues and other guidelines applicable to listed banking companies.

The proposal for creating payments banks stemmed from the report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (Chairman: Dr. Nachiket Mor) submitted in January 2014. This was later announced in the Union budget 2014-2015 presented on July 10, 2014.

The existing non-bank Pre-paid Payment Instruments Issuers (PPI issuers) authorised under the Payment and Settlement Systems Act, 2007 (PSS Act) and other entities such as Non-Banking Finance Companies (NBFCs), corporate Banking Correspondents (BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives and public sector entities may apply to set up a Payments Bank. Even banks can take equity stake in a Payments Bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.

The draft guidelines regarding payments banks were issued by RBI on July 17, 2014. RBI released the final guidelines on 27 November 2014 and updated it further on 6 October 2016.

The Reserve Bank accorded in principle approval to eleven entities to form payment banks on August 19, 2015. Amongst the various entities, India Post has also been permitted to be a payment bank. Towards this, the Department of Posts is launching India Post Payments Bank (IPPB) as a Public Limited Company with 100% Government of India (GOI) equity. As per the Cabinet approved plan of 1 June 2016, the IPPB will obtain banking licence from RBI by March 2017 and by September 2017, its services will be available across the country through 650 payments bank branches, linked post offices and alternative channels riding on modern technology including mobiles, ATMs, PoS/ m-PoS devices etc and simple digital payments. It is expected to create the largest bank in the world in terms of accessibility.

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