11 Payment Banks to Become Reality

On 19 August, Reserve Bank of India (RBI) gave an initial nod to 11 entities to start payment banks.

What are payment banks?

Payment banks are basically banks with limited banking functions.  They don’t work like a full-fledged bank but provide limited services, such as acceptance of deposits, payments, remittance services and internet banking. They also function as business correspondents for other banks. Initially, payment banks will be allowed to collect deposits up to Rs 1 lakh only and issue debit cards.

Apart from money transfer facilities, payment banks will also be allowed to sell financial products, such as mutual funds and insurance. However, they cannot venture into any lending activities, including issue of credit cards.

The process followed to select 11 payment banks

In total 41 entities had applied. These included individuals, existing pre-paid payment instrument issuers, NBFCs, corporate business correspondents, telecom companies, super-market chains real estate sector cooperatives owned and controlled by residents and public sector entities. However, the RBI has given in-principal approval to only 11 applicants.

The approval is valid for 18 months. These entities will have to comply with the requirements and fulfill the other conditions stipulated by the guidelines. Additionally, post offices will also start offering banking services and function as payment banks, owing their vast network in rural and urban India.

Experts believe that this move to have payment banks will revolutionize banking services and expedite financial inclusion. This will help in increasing the rural reach as payment banks will be allowed to function as business correspondents of existing licence holders.

Currently, payment banks will target migrant labourers, low income households, small businesses and other unorganized sector entities.

The chosen few

The list of entities that have received in-principle approval is as follows: