Payment banks to offer benefits of digital banking

Source: The Hitavada      Date: 10 Jan 2017 09:48:49


By Sudhakar Atre,

THE Government of India had formed the Nachiket Mor Committee to suggest a mechanism to offer benefits of digital banking to even the poorest of the poor to deepen financial inclusion. The Committee submitted its report on January 17, 2014 to the RBI recommending setting up of payments banks.


The concept envisaged that payments banks will offer opportunities to the common man to open bank accounts at nearby retail outlets (sellers/shops) and offering access to a number of basic banking services like cash deposits, money transfer and withdrawal facilities.
They will offer demand deposits such as savings and current accounts upto a balance of Rs 1 lakh, digitally enabled payments and remittance services of all kinds between entities and individuals and also provide access to third party financial services such as insurance, mutual funds, pension, credit products, forex, etc., in partnership with insurance companies, mutual fund houses, pension providers, banks, international money transfer organisations, etc. The RBI issued operating guidelines for payments banks on October 6, 2016.


Salient features of the payments banks guidelines are:
i) Objectives: The objectives of setting up of payments banks will be to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities etc.


ii) Scope of activities: Acceptance of demand deposits. Payments banks will initially be restricted to holding a maximum balance of Rs 1 lakh per individual customer. Issuance of ATM/debit cards. Payments banks, however, cannot issue credit cards.


iii) Deployment of funds: The payments banks cannot undertake lending activities. Apart from amounts maintained as cash reserve ratio (CRR) with the RBI, it 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 upto 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.


iv) Capital requirement: The minimum paid-up equity capital for payments banks will be Rs 100 crore. The payments banks should have a leverage ratio of not less than 3 per cent, i.e. its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).


v) Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such payments banks will at least be 40 per cent for the first five years from the commencement of its business.
vii) Foreign shareholding: The foreign shareholding in the payments banks would be as per the Foreign Direct Investment Policy for private sector banks.


On August 19, 2015, the RBI gave in-principle licences to 11 entities to launch payments banks: Aditya Birla Nuvo, Airtel M Commerce Services, Cholamandalam Distribution Services, Department of Posts, FINO PayTech, National Securities Depository, Reliance Industries, Dilip Shanghvi, Sun Pharmaceuticals, Vijay Shekhar Sharma, Paytm, Tech Mahindra and Vodafone M-Pesa.


Out of these 11 entities, 3 have surrendered their licences. First one being Cholamandalam Distribution Services, Dilip Shanghvi, Sun Pharmaceuticals and Tech Mahindra.


The news of launch of India’s first payments banks, Airtel Payments Bank, on November 23, 2016 got lost in the present euphoric discussion on demonetisation. Airtel Payments Bank Limited was the first payments bank in India to go live in Andhra Pradesh, Telangana and Rajasthan, where over 1 lakh customers opened savings accounts in less than two weeks of commencement of services.


The India Post Payments Bank (IPPB) has been recently incorporated as a public limited company under the Department of Posts with 100 per cent GoI equity. IPPB is expected to start operations in FY 2017-18 and is slated to have 650 branches at district headquarters. They have already initiated the recruitment process. With over 1.54 lakh post offices across the country, it will function as customer access points for IPPB powered by the very postmen who deliver letters.


The on-line mobile wallets company Paytm is going to launch its Paytm Payments Bank with Rs 400 crore initial capital in February this year by opening its first branch in Noida in Uttar Pradesh. With the completion of demonetisation drive and vigorous promotion of digital banking to bring in maximum transactions into formal channels.