PAYMENT BANKS

Payment Banks are a new model of banks conceptualized by the Reserve Bank of India (RBI) to extend financial services to the underserved and unbanked sections of society, particularly in rural and remote areas. These banks are designed to provide basic banking services such as acceptance of deposits and remittances, but they are not allowed to offer loans or credit services. The primary objective is to enhance financial inclusion.

Key Features of Payment Banks

1. Objective:
   • To promote financial inclusion by providing small savings accounts and payment/remittance services to migrant laborers, low-income households, small businesses, and other unorganized sector entities.
2. Scope of Operations:
   • Payment Banks can accept demand deposits (current and savings accounts) up to a maximum balance of ₹2 lakh per customer.
   • They can issue ATM/debit cards, but not credit cards.
   • They can offer remittance services, mobile payments/transfers/purchases, and other banking services like net banking.
3. Regulatory Framework:
   • Payment Banks are regulated by the RBI under the Banking Regulation Act, 1949, and are subject to prudential norms and guidelines set by the central bank.
4. Capital Requirements:
   • The minimum paid-up equity capital requirement for Payment Banks is ₹100 crore.
   • The promoter’s minimum initial contribution to the paid-up equity capital of a Payment Bank shall be at least 40% for the first five years from the commencement of business.
5. Operational Restrictions:
   • Payment Banks cannot engage in lending activities.
   • They must maintain a Cash Reserve Ratio (CRR) as stipulated by the RBI.
   • A significant portion of their deposits (minimum 75%) must be invested in Statutory Liquidity Ratio (SLR) securities.
6. Technology Focus:
   • Payment Banks leverage technology to provide seamless and efficient banking services, often relying heavily on digital platforms and mobile banking solutions.

Examples of Payment Banks

1. Airtel Payments Bank:
   • Background: Promoted by Bharti Airtel, one of India’s leading telecom operators.
   • Services: Offers savings accounts, fixed deposits, remittance services, and utility payments. Customers can open accounts using their mobile phones, and the bank operates through a network of Airtel retail outlets.
   • Innovations: First payments bank to start operations in India, utilizing its extensive telecom infrastructure to reach remote and rural areas.
2. India Post Payments Bank (IPPB):
   • Background: A 100% government-owned entity under the Department of Posts, Ministry of Communications.
   • Services: Provides savings accounts, current accounts, remittance services, and bill payments. It leverages the extensive postal network to offer banking services across rural and remote areas.
   • Innovations: Uses postmen and Gramin Dak Sevaks equipped with mobile devices to offer doorstep banking services.
3. Paytm Payments Bank:
   • Background: Part of Paytm, a leading digital wallet and e-commerce platform in India.
   • Services: Offers savings accounts, current accounts, fixed deposits, and a wide range of digital payment services. It provides a seamless integration of banking services with Paytm’s existing digital wallet.
   • Innovations: Focus on digital transactions and integration with the Paytm ecosystem, including e-commerce and bill payments.
4. Fino Payments Bank:
   • Background: Evolved from Fino PayTech, which was focused on providing technology solutions for banking and payments.
   • Services: Provides savings and current accounts, remittance services, and utility bill payments. It operates through a network of agents and merchants.
   • Innovations: Emphasizes agent-based banking and doorstep banking services to enhance financial inclusion.
5. Jio Payments Bank:
   • Background: A joint venture between Reliance Industries Limited and the State Bank of India.
   • Services: Offers basic banking services, including savings accounts, remittance services, and bill payments. It aims to leverage the extensive reach of Jio’s telecom network.
   • Innovations: Focuses on digital and mobile banking solutions, targeting Jio’s large customer base.

Key Differences Between Payment Banks and Other Types of Banks

Feature	Payment Banks	Commercial Banks	Small Finance Banks
Objective	Financial inclusion, providing basic banking services	Comprehensive banking services, including loans and credit	Financial inclusion, providing credit to underserved sections
Capital Requirement	Minimum ₹100 crore	Varies (higher for large banks)	Minimum ₹200 crore
Lending Activities	Not allowed	Allowed, including various loan products	Allowed, but with a focus on small and marginal loans
Deposit Limit	₹2 lakh per customer	No such limit	No such limit
Product Offerings	Savings accounts, current accounts, remittance services	Full range of banking products, including savings, loans, and credit cards	Savings accounts, current accounts, loans for small businesses and individuals
Branch Network	Limited, often leveraging existing retail or telecom networks	Extensive, both urban and rural	Focus on rural and underserved areas
Technology Focus	High, emphasis on digital and mobile banking	High, but with traditional banking channels as well	High, with a focus on serving underserved areas

Summary

Payment Banks in India are an innovative banking model aimed at enhancing financial inclusion by providing basic banking services to underserved and unbanked populations. They operate under a regulatory framework set by the RBI and focus on leveraging technology to deliver efficient and accessible banking services. Examples like Airtel Payments Bank, India Post Payments Bank, and Paytm Payments Bank highlight the diverse approaches and innovations brought by these banks to reach remote and rural areas, integrate digital payments, and promote financial literacy and inclusion across the country.