Payments Bank is an eminent micro-bank which provides limited banking functions. It is set up as per the payments banks guidelines issued by the Reserve Bank of India (RBI). Payments banks are an attempt to make sure that all sections of society, including people living in remote and rural areas, have access to banking facilities. Acquiring a Payment Bank License is significant and must be obtained by individuals that are planning to set up a payments bank. These banks have the freedom to accept the restricted deposits.
Objective of Payment Banks
The major objective of payment banks is to raise financial inclusion. One major way they achieve financial inclusion is by offering small saving accounts and payment remittance services to low-income households, migrant labor workforce, small businesses and unorganized sector establishments.
Features of Payment Banks
Payments Banks are important because they provide several benefits. They have made banking services simpler and easier.
- Low Deposit limit
Their deposit limit is low in comparison to other conventional banks; this makes it easier for individuals with lower incomes.
- Elimination of cash dependency
Payment banks contribute in the creation of a cashless lifestyle because the transactions are conducted through the online mode.
- Online transactions only
All the financial transactions are undertaken online, which means the banking facilities can be done easily on the smartphones
- Simpler banking process
It makes the banking process less time consuming as it takes pale online. Individuals prefer online banking as it saves a lot of time and they do not have to stand in the long queues of the banks.
- Efficient utilization of technology
Since all the transactions take place online, payments bank companies are always on the lookout for the latest technology which they could use in order to help the customers and make their banking experience simple and smooth.
Payment Bank License Registration Process
RBI plays a crucial role in the establishment of a payment bank. The registration of a payment bank is mandatory as there are several reasons why acquiring a license has been made a compulsion. Following Payment Bank License Registration Process is simple as the steps are less complicated and is therefore easy to follow. RBI issued this particular license to the company before they start the business functions.
The steps to be followed in the process for registration are as mentioned below –
A Public Limited Company must be incorporated, in accordance to the Companies Act, 2013, with one of the main objectives of acting as a payment bank.
The applicant must file an application form to the Chief General Manager of The Reserve Bank of India.
The applicant has to take an in-principal approval from Reserve Bank of India (RBI). RBI then conducts an assessment before finalizing and approving so that the applicant can continue to the next step.
If all the criteria are met, RBI grants license to that particular applicant.
After receiving approval from the RBI and receiving the license, the company must be set up within 18 months.
Entities eligible for establishing Payments Bank
- Existing non-bank prepaid payment instrument under the Payment and settlement systems Act, 2007
- Non-Banking Finance Companies(NBFCs)
- Business correspondents
- Mobile and telephone companies
- Supermarket chains
- Companies (mainly public companies)
- Real sector cooperatives
- Public sector entities
Rules and Regulations by Reserve Bank of India (RBI) for Payment Banks
RBI prescribes certain compliances that must be taken into consideration by the banks for operating in an appropriate manner.
- The banks are allowed to have both saving and current accounts.
- They can accept deposits up to Rs 1 Lakhs from every customer.
- The payment of deposits accepted must be paid as a savings bank account of conventional banks.
- The transfer and remittance services are allowed to take place through smartphones.
- Services such as automatic payments of utility bills and cashless/cheque fewer purchases can be offered only through a smartphone.
- These banks can set up branches and its ATMs and issue debit cards.
- They can offer forex cards to travelers which can be later used as a debit or ATM card all over India.
- They are allowed to sell third-party non-risk sharing simple financial products like mutual fund units and insurance products through mobile apps and outlets.
- Payments banks can become a business representative of any other bank, but only if it agrees to comply with the guidelines of Reserve Bank of India.
- A payment bank must maintain cash reserve ratio.
- They must invest a minimum of 75% of their demand deposits balances in Statutory Liquidity Ratio to Government securities or treasury bills with maximum maturity of 1 year and
- They must hold a maximum of 25% in current and time or fixed deposits with scheduled commercial banks for operating purposes and liquidity management.
- Setting up subsidiaries to undertake non-banking financial services activities is prohibited for payments banks.
- Payments banks cannot provide loans or lending services to the customers.
Provisions every Payment Bank must follow
All the Payment Bank promoters must abide by these provisions of RBI:
- The Payments Banks are prohibited from accepting NRI deposits.
- It must have a minimum paid-up capital of 100 Crores.
- These banks can issue ATMs or debit cards but cannot lend loans and offer credit card services.
- In the initial five years of the business, the contribution of the promoter shall be at least 40 per cent of the total paid-up capital.
- The Payment Banks can accept current deposits and savings bank deposits from small businesses up to a prescribed limit. Also, they can accept remittances as a channel.
- Acquisition of stake of more than 5% in the payments bank company by any party will require prior approval of RBI.
- Under the digital platform of Payments Banks, customers can avail numerous internet banking solutions on lower costs.
- The voting rights of stakeholders in a Payments Bank Company is regulated according to the Banking Regulations Act, 1949, which in the first instance caps voting rights of a shareholder in a private sector bank at 10%. This limit can be raised by RBI by up to a maximum of 26%