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All about Payments Bank

Introduction: Small Finance banks and Payments bank are differentiated banks. Differentiated banks are those whose scope of activities are subset of those allowed for universal banks.

Objective of Payments Bank: The objectives of setting up of payments banks is financial inclusion by providing

• small savings accounts and
• payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.

What Payments Bank can do/cannot do: (Scope of activities)

• Acceptance of demand deposits. Maximum balance of Rs. 2,00,000 per individual customer. No NRI deposits should be accepted.
• Issuance of ATM/debit cards.
• Payments banks, however, cannot issue credit cards or grant loans
• Payments and remittance services through various channels.
• BC of another bank, subject to the Reserve Bank guidelines on BCs.
• Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc.
• The payments bank cannot undertake lending activities.
• The payments bank cannot set up subsidiaries to undertake non-banking financial services activities.

Permitted share of scheduled commercial bank in Payments Bank: A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. The maximum share of Scheduled Commercial Bank can be 30 percent of the paid –up share capital of the Payments Bank or 30 percent of its own paid-up share capital whichever is less.

SLR and CRR: SLR for Payments Bank is 75%.

• It will be required to invest a minimum 75 percent of its “demand deposit balances” in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity of up to one year.
• The rest of the deposit (maximum 25 percent) can be invested in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
• Payments Bank have to maintain CRR with RBI.
• Remember: Minimum 75% in SLR – Hence Remaining 100-75=25% i.e Minimum 25% as deposits in Scheduled Commercial Banks.

Capital: The minimum paid-up equity capital for payments banks shall be Rs. 100 crore.

FDI Limit: 74% (As of Private Banks)

Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business.

Registration, licensing and regulations:

• Registered: Under the Companies Act, 2013 (as a public limited company)
• Licensed: Under Section 22 of the Banking Regulation Act, 1949
• Governed: Banking Regulation Act, 1949; 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

Voting rights and transfer/acquisition of shares: Any shareholder’s voting rights in private sector banks are capped at 10 per cent. This limit can be raised to 26 per cent in a phased manner by the RBI.

One Liners:

• The payments bank will be required to use the words “Payments Bank” in its name in order to differentiate it from other banks.
• When the payments bank reaches the net worth of Rs.500 crore, and therefore becomes systemically important, diversified ownership and listing will be mandatory within three years of reaching that net worth.
• The payments bank will be required to have at least 25 per cent of physical access points including BCs in rural centres.
• RBI does not envisage payments banks to be “virtual” banks or branchless banks.

List of functional payments Bank: Airtel Payments Bank was the first Payments Bank in India.

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