All You Need To Know About Payment Banks

Payment banks are new Indian model of banks conceptualized by Reserve Bank of India (RBI). They are different from formal banking system.

Registration and Licensing

They are registered as public limited company under the Companies Act, 2013.
Payment Banks are 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.
They are also governed under the provisions of the following:
- Reserve Bank of India Act, 1934
- Foreign Exchange Management Act, 1999
- Payment and Settlement Systems Act, 2007
- Deposit Insurance and Credit Guarantee Corporation Act, 1961
- Prudential Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time.
They are given scheduled bank status under Section 42 (6) (a) of Reserve Bank of India Act, 1934.

How is it different from a regular bank ?

Payment Banks operate on a smaller scale as compared to the commercial banks
They cannot issue loans and credit cards.
They can accept a restricted deposit, currently limited to ₹1,00,000 per customer at the end of the day

Why were the Payment Banks required?

Expanding the availability of financial services to unbanked entities, like small businesses, households with low income, migrant labour force etc. i.e. to achieve financial inclusion as well as to provide financial services to every citizen concentrating more on rural India.

History of Payment banks

Reserve Bank of India (RBI), on 23rd September 2013 constituted a committee on Comprehensive Financial Services for Small Businesses and Low Income Households headed by Nachiket Mor. The committee submitted its report on 7th January 2014 and recommended the formation of a new category of bank (Payment Banks).

Conditions for Payments Banks

Minimum capital requirement to set up a Payments Bank: Rs. 100 crore.
The stake of the promoter for initial 5 year period should be minimum 40%.
Foreign share holdings will be permitted subject to the rules of foreign direct investment for private banks in India.
The voting rights in the bank will be regulated by Banking Regulation Act, 1949.
Payments bank have leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed 33.33 times its net worth
Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of payments bank shall be at least be 40% for the first five years from the commencement of its business.
Majority of Bank’s board of Directors should consist of independent directors, appointed as per RBI Guidelines.
Payments Bank can accept Utility Bills and they cannot form separate subsidiary to undertake non-banking activities.
25% of the branches of these banks should be in the unbanked rural areas.
Payment Banks cannot approve/ disburse loans or issue credit cards.
Payment banks can offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.
High SLR requirements: Besides maintaining CRR with RBI, these banks have to keep 75% of their deposits in government securities or golds as SLR.

Payment Banks

RBI approved license of 11 applicants. They are as follows:

Aditya Birla Nuvo Limited
Airtel M Commerce Services Limited
Cholamandalam Distribution Services Limited
India Department of Posts
Fino PayTech Limited
National Securities Depository Limited
Reliance Industries Limited
Shri Dilip Shantilal Shanghvi
Paytm Payments Bank Limited
Tech Mahindra Limited
Vodafone m-pesa Limited

As of now, 7 entities have started their operations as Payments Bank. The list is as follows:

Airtel Payments Bank
Paytm Payments Bank
India Post Payments Bank
Fino Payment Bank
Aditya Birla Idea Payments Bank
Jio Payments Banks
NSDL Payments Bank

Payments Banks in Details

1. Airtel Payment bank Ltd

Launched: January, 2017
It is the first Payments banks of India.
Airtel Payment Bank Ltd is a joint venture between Bharti Airtel and Kotak Mahindra Bank
Airtel Payment bank Ltd launched its pilot project of its banking services 10,000 Airtel retail outlets in Rajasthan on 23rd November 2016.
Anubrata Biswas is the MD & CEO of Airtel Payments Bank.
Airtel Payments Bank is a fully digital and paperless bank.
It offers quick and paperless account opening using Aadhaar based e-KYC i.e no documents are required, only the customer’s Aadhaar number is sufficient.
It also offers personal accidental insurance of Rs. 1 Lac with every Savings Account.
Headquarters: New Delhi

2. Paytm Payments Bank

Paytm received approval from RBI to start its Payment Bank in November 2017 and started its operation with first branch coming up in Noida, Uttar Pradesh.
Vijay Shekhar Sharma, founder of One97 Communications (parent company of Paytm) and chairman.
Headquarters: Noida, Uttar Pradesh

3. India Post Payment bank

India Post Payment Bank (IPPB) was incorporated as a Public Sector Bank under the Department of Posts with 100% Government of India equity.
First Pilot IPPB was inaugurated at Raipur and Ranchi on 30th January, 2017 .
IPPB will play a major role in financial inclusion as India Post has about 1,54,000 post offices, of them 90% are in rural areas.
It become a full-fledged payment bank in September 2017.
Payments Banks will thus help expand the potential of financial inclusion in the economy.
MD & CEO: Suresh Sethi
Chairman: P. K. Bishnoi
Headquarters: New Delhi

4. Fino Payments Bank

The first payments bank to go live with 410 branches and more than 25,000 banking points on day one.
The bank was incorporated on 4th April, 2017 with the name Fino Payments Bank Limited.
MD & CEO: Rishi Gupta
Headquarters: Mumbai

5 Jio Payments Bank

Jio Payments Bank is an Indian payment bank that started operating on 3rd April, 2018.
MD & CEO: H. Srikrishnan
Chairman: Vivek Bhandari
Headquarters: Mumbai

6. NSDL Payment Bank