contd:-

Now what is payment bank..

What is Payment Bank ?

Nachiket cites the “case study” of M-Pesa, to strengthen his argument in favour of Payment banks.

1. Objectives

There is a need for transactions and savings accounts for the underserved in the population. Also remittances have both macro-economic benefits for the region receiving them as well as micro-economic benefits to the recipients. Higher transaction costs of making remittances diminish these benefits.

Therefore, the primary objective of setting up of Payments Banks will be to further financial inclusion by providing

(i)                small savings accounts and

(ii)             payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments / remittance services in a secured technology-driven environment.

2. Registration, licensing and regulations

The Payments Bank will 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 SEBI regarding public issues and other guidelines applicable to listed banking companies.

3. Eligibility criteria

The existing non-bank PPI issuers authorised under the Payment and Settlement Systems Act, 2007 (PSS Act) and other entities such as Non-Banking Finance Companies (NBFCs), corporate 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 entities and their Promoters/ Promoter Groups as defined in the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 should be ‘fit and proper’ in order to be eligible to promote Payments Banks. RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of at least 5 years in running their businesses.

4. Scope of activities

Payment Banks means “Digital Wallet or Mobile Currency” which can be used to book movie tickets, pay utility bills, do shopping etc. Doesn’t it sound similar to PPI or what existing banks offer? But here is the difference, the payment banks could be supermarket chain, mobile service provider, non-banking financial companies, post offices, agri/dairy type cooperatives etc.

The Payments Bank will be set up as a differentiated bank and shall confine its activities to further the objectives for which it is set up. Therefore, the Payments Bank would be permitted to undertake only certain restricted activities permitted to banks under the Banking Regulation Act, 1949, as given below:

Acceptance of demand deposits, i.e., current deposits, and savings bank deposits. The eligible deposits mobilised by the Payments Bank would be covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC).

Payments Banks will initially be restricted to holding a maximum balance of Rs. 100,000 per customer. After the performance of the Payments Bank is gauged by the RBI, the maximum balance can be raised. If the transactions in the accounts conform to the “small accounts” transactions, simplified KYC/AML/CFT norms will be applicable to such accounts as defined under the Rules framed under the Prevention of Money-laundering Act, 2002.

Payments and remittance services through various channels including branches, BCs and mobile banking. The payments / remittance services would include acceptance of funds at one end through various channels including branches and BCs and payments of cash at the other end, through branches, BCs, and Automated Teller Machines (ATMs). Cash-out can also be permitted at Point-of-Sale terminal locations as per extant instructions issued under the PSS Act. In the case of walk-in customers, the bank should follow the extant KYC guidelines issued by the RBI.

Features of Payment Banks

1. Payment Banks can accept demand deposits (only current account and savings accounts) with a ceiling limit of Rs.1 lakh per customer.

2. Payment Banks will pay interest at the rate notified by the RBI.

3. Payment Banks can issue Debit Cards but not credit cards.

4. Payment Banks cannot engage in lending services i.e. they cannot give loans,

     thus phasing out the fear of NPA.

5. The Deposit up to Rs.1 lakh is insured by the DICGC (Deposit Insurance and  

     Credit Guarantee Corporation), same as in bank accounts.

6. Payment banks cannot involve in any credit risk and can only invest in less than

    one year G-Secs or treasury bills.

7. Payment Banks will charge a fee as commission. This will be the sole earning

     for the banks.

8. Payment bank will also have to maintain CRR (Cash reserve ratio) just like other

     Scheduled commercial banks (SBI, PNB, BoB, Dena, ICICI etc).

to be contd:-