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What is a payment bank?
What is a payment bank? There was a rush of applications for licences of payment banks on Monday as the deadline expired on the day.
There was a rush of applications for licences of payment banks on Monday as the deadline expired on the day. Several big companies like Airtel, Oxigen, ItzCash, MobiKwik and FINO PayTech and private sector lenders ICICI Bank and Kotak Mahindra Bank are in the fray.
A payment bank is a bank on which a check or draft is drawn and the bank which cashes it. The RBI in its plans to expand banking to the unbanked has decided to rope in telecom companies and create payment banks and small banks. Payment bank licences seem primarily intended for mobile companies and prepaid card issuers. They can't give loans and can only collect deposits, with a maximum balance of Rs 1 lakh. They must aid small savings and help remittances. Small banks must primarily be in geographically contiguous districts and give loans below Rs 25 lakh.
Payments banks are aimed at encouraging savings and help with remittances, although RBI has put a cap on the stake which can be held by commercial banks in such entities. Payments banks are not allowed to lend by themselves, but a bank can meet the credit needs of customers, who will be served by its telecom service provider. However, the loans could be small-ticket size and the banks can look at them as asset origination sources. These banks will mainly be used by payments and remittances to migrant labour workforce, low income households, small businesses and other unorganised sector entities, according to the RBI. According to DNA, the maximum deposit that a payment bank can accept from an individual customer is Rs 1 lakh. A payment bank cannot issue a credit card, but it can issue debit and ATM cards. They cannot provide loans. The service is also open to applicants transacting primarily using the Internet. The Payments Bank is expected to leverage technology to offer low cost banking solutions. To make it safe for people, the RBI has stipulated stringent Cash Reserve Ratio, Statutory Liquidity Ratio and investments in current and fixed deposits with other scheduled commercial banks.
