Payment Banks

• Context (BS): Payment banks have urged the Union Finance Ministry to increase their deposit limit for each account to ₹5 lakh. At present, they can accept deposits of up to ₹2 lakh.

What are Payment Banks?

• Dr Nachiket Mor committee suggested to introduce specialised banks or payments bank to cater to the lower income groups and small businesses.
• Need: To increase the penetration level of financial services to the remote areas of the country.
• Similar to other banks but operate on a smaller scale.

• What is not allowed?
  • No credit risk involved. (it can’t advance loans or issue credit cards)
  • They cannot accept NRI deposits.
• What is allowed?
  • Can accept demand deposits (up to Rs 2 lakh).
  • Offer remittance services.
  • Mobile payments/transfers/purchases.
  • Other banking services like ATM/debit cards, net banking and third-party fund transfers.
• Eligible promoters: NBFCs, individuals, corporations, mobile phone companies, supermarket chains, real estate cooperatives, and public sector entities
• A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank.
• Registered as a public limited company under the Companies Act of 2013
• Licensed under Section 22 of the Banking Regulation Act of 1949.
• Governed by the provisions of
  • the Banking Regulation Act of 1949.
  • the Reserve Bank of India Act of 1934.
  • the Foreign Exchange Management Act of 1999.
  • the Payment and Settlement Systems Act of 2007.
• They must keep a Cash Reserve Ratio (CRR).
• Required to invest a minimum of 75% of its demand deposit balances in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills with maturity up to one year.
• Need to hold a maximum of 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
• Minimum paid-up capital 100 crore.
• Promoters’ contribution: the minimum initial contribution to paid-up equity capital must be at least 40% for the first 5 years.
• Foreign shareholding: It would be as per the Foreign Direct Investment (FDI) policy.