Payments Banks, India Post Payments Bank & Small Finance Bank

 Payments Banks

• Payments banks were part of the Reserve Bank of India’s strategy of offering differentiated banking licences.
• A committee headed by Dr. Nachiket Mor recommended setting up of 'Payments Bank' to cater to the lower income groups and small businesses.
• A payments bank is a differentiated bank, offering a limited range of products.
• It can accept demand deposits only that is savings and current accounts, not time deposits.
• Payment banks are restricted to holding a maximum balance of Rs. 200,000 (two lakhs only) per individual customer.
• Payment Banks cannot accept Non-Resident Indian (NRI) deposits.
• The Payment Banks cannot set up subsidiaries to undertake non-banking financial services activities.
• The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks.
• Payments Banks cannot set up subsidiaries to undertake NBFC business.
• The Payments Banks would be required to use the word ‘Payments’ in its name to differentiate it from other banks.
• No credit lending is allowed for Payments Banks. The float funds can be parked only in less than one-year G-Secs

Eligible Promoters

• Existing non-bank Pre-Paid Payment Instrument (PPI) issuers;
• Other entities such as
• individuals/professionals;
• Non-Banking Finance Companies (NBFCs),
• Corporate Business Correspondents (BCs), mobile telephone companies,
• Supermarket chains, companies, real sector cooperatives; that are owned and controlled by residents; and
• Public sector entities may apply to set up payments banks.
• A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank.
• Scheduled commercial banks can take equity stake in a payments bank to the extent permitted under the Banking Regulation Act, 1949.

Regulation

• The Payments Bank will be registered as a public limited company under the Companies Act, 2013. It is governed by the provisions of the Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007, other relevant Statutes and Directives.
• They need to maintain a Cash Reserve Ratio (CRR).
• Required to invest a minimum 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 maximum 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

Other Important Provisions

• Capital requirement: The minimum paid-up capital for payments bank is Rs 100 crore.
• Promoter's contribution: Minimum initial contribution to the paid-up equity capital shall at least be 40% for the first five years from the commencement of its business.
• Foreign shareholding: The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time

India Post Payments Bank

• The Prime Minister launched India Post Payments Bank (IPPB) on September 1, 2018.
• It is an initiative of the government aimed at making banking services available at people’s doorstep.
• IPPB is a wholly-owned subsidiary of Deparment of Post, with 100 percent Government of India equity.
• It is a payments bank of the Indian postal department which will work through a network of post offices and nearly 3 lakh postmen.
• IPPB’s Vision
• Building most accessible, affordable and trusted bank for common man.
• Spearheading Financial Inclusion- agenda for under-banked populace.
• It will be governed by Reserve Bank of India (RBI).
• While its services will be available to all citizens, the IPPB will primarily focus on serving social sector beneficiaries, migrant labourers, un-organised sector, Micro Small and Medium Enterprises (MSMEs), Panchayats, low-income households, in rural areas and the unbanked and under-banked segments in both the rural and urban areas.

Functions of IPPB

• It will accept deposits, offer remittance services, mobile banking and third-party fund transfers.
• It offers 3 types of saving account:
• Regular Account – Safal,
• Basic Savings Bank Deposit Account (BSBDA) – Sugam and
• BSBDA Small – Saral
• The maximum limit on deposits for current and savings account is Rs 1 lakh.
• The bank offers a 4 per cent interest rate on savings account.
• They can issue debit cards and ATM cards, but they cannot issue credit cards and cannot loan money.
• It will provide social security payments like MGNREGA wages, direct benefit transfers and give access to third-party services insurance, mutual funds
• IPPB account holders will be issued a QR Code based biometric card with a unique QR code.

Small Finance Bank

• The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

What they can do:

• Take small deposits and disburse loans.
• Distribute mutual funds, insurance products and other simple third-party financial products.

The guidelines they need to follow:

• Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
• Minimum paid-up capital would be Rs 100 cr.
• Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%.
• Foreign shareholding capped at 74% of paid capital, FPIs cannot hold more than 24%.
• Priority sector lending requirement of 75% of total adjusted net bank credit.
• 50% of loans must be up to Rs 25 lakh.