Whenever we think of money and institutes related to it, the first name that strikes our mind is a bank. Banking institutes are more than just money lenders. Banking transactions in India have been rising for the last two decades. Multiple factors contribute to this growth. The growth was not normal as compared to the previous period. However, a majority of the rural and sub-urban population was not in the mainstream banking.
As the Government of India was planning to make the banking system available for everyone, existing commercial banks were not in the state to establish their branches in every village area as it was not a feasible option. This triggered the need for a disruptive & revolutionary banking model that could cover all the regions which were left behind from the mainstream banking system.
History of Payments Bank
Payments bank is an innovative digital banking model conceptualised by the Reserve Bank of India (RBI).
A Committee on Comprehensive Financial Services for Small Businesses and Low Income Households was formed by the former Governor of the RBI Raghuram Rajan on 23rd September 2013. It was headed by Nachiket Mor. The Committee submitted its report in 2014. In 2015 RBI issued an “in-principle” license for eleven entities to launch payments bank.
These licenses were initially granted for 18 months, where they had restrictions on not entering into banking activities within that period until they fulfilled the requirements. RBI was in the process to grant a full banking license under section 22 of the Banking Regulation Act, 1949, once the entities satisfied the conditions.
Current Payment Banks in India
Out of the 41 applicants on the list of Payments banks, 11 were initially granted “in-principle” licenses, for the first 18 months of the provisional payments bank. The list of licensed payments bank consisted of:
- Airtel M Commerce Services Limited
- Cholamandalam Distribution Services Limited
- Aditya Birla Nuvo Limited
- India Department of Post
- Fino Paytech Limited
- National Securities Depository Limited
- Reliance Industries Limited (JIO)
- Shri Dilip Shantilal Shanghvi (Sun Pharmaceuticals)
- Paytm Payments Bank Limited
- Tech Mahindra Limited
- Vodafone m-pesa Limited
Active Payments Bank:
- Airtel Payments Bank
- India Post Payments bank
- Fino Payments Bank
- Jio Payments Bank
- Paytm Payments Bank
- NSDL Payments Bank
From these six payments banks, Airtel Payments Bank was the first to receive a license from the RBI. It holds the second top position in the Payments Banking list. Paytm Payments Bank is at the top position holding around 19% of the total mobile-banking transactions.
What services does Payments Bank provide?
Payment banks are designed to counter the loophole between the mainstream market and Unbanked & Underbanked regions. These banks primarily target lower-income groups. The interest rates offered range between 4% to 7% on the money deposited. It is higher than commercial banks offers around 3% to 4% interest rate.
- The deposit limit is up to ₹ 2,00,000 per account. Savings & Current account facility.
- Permitted to issue Debit card. Cash withdrawal facility from ATM.
- Payments bank can make personal payments & receive cross border remittances on the current account.
- Provides diversified services like online bill payments, recharges, UPI payments, and investments in cryptocurrency.
Challenges with Payments Bank
- It is a new type of bank that has been established to operate in rural areas. Even though we are seeing a rise in internet connectivity to remote places, awareness among the masses is still unreached. Many of them do not have access to all the services that have been provided.
- Sales & Marketing agents receive fewer incentives that keep them least involved in promotional activities.
- This new form of the banking sector is still in the infant stage. Some technical and infrastructure hurdles need immediate repair.
– Parag Ahire