April 10, 2020

Payment Banks

Payment Banks
Payment Banks are to be registered as public limited companies under the Companies Act, 2013 and are to be licensed under Section- 22 of the Banking Regulation Act, 1949. Payment Banks are to be given the status of scheduled banks under the section 42 (6) (a) of the Reserve Bank of India Act, 1934. However, the words "Payments Bank" have to be used by the companies in their name in order to differentiate it from other banks.
They will be governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961 and other relevant Statutes and directives. The guidelines will be reviewed by the RBI regularly. RBI's main aim to push for payments bank is to serve the need of different banking activities in the rural areas. This has both micro and macroeconomic benefits and serves the general public at large.
History of Payment Banks
RBI on 23rd September 2013 constituted a committee on Comprehensive Financial Services for Small businesses and Low-Income Households that was headed by Nachiket Mor. The committee submitted its report on 7th January 2014 and also recommended the formation of a new category (Payment Banks) among its other recommendations.
Draft guidelines for the license of Payment Banks and their list were released by RBI in February 2015. The license applications were evaluated by External Advisory Committee headed by Nachiket Mor who submitted its report on 6th July 2015 after examining the financial track record as well as governance issue on applicant entities.
On 19th August 2015, RBI gave the in-principle license to 11 entities to launch Payment Banks. The In-Principle License is valid for a period of 18 months and the concerned entities are required to fulfil entities are required to fulfil all the requirements within this period. They are not allowed to engage in Banking activities in this period. After the fulfilment of all the conditions which are required to set up a Payment Bank, RBI will grant licenses under Section- 22 of the Banking Regulation Act, 1949.
Conditions to set up Payments Banks
The minimum capital requirement to set up a Payments Bank is Rs. 100 crore.The stake of the promoter for the initial 5 year period should be minimum 40%.Foreign share holdings will be permitted subject to the rules of foreign direct investment for private banks in India.The voting rights in the bank will be regulated by Banking Regulation Act, 1949 and the upper cap of voting right for any shareholder will be 10%. This may be raised to 26% by Reserve bank of India.Any acquisition of more than 5% needs to be approved by RBI. Majority of Bank's board of Directors should consist of independent directors, who should be appointed as per RBI Guidelines. Payments Bank can accept Utility Bills and they cannot form separate subsidiary to undertake non-banking activities.25% of the branches of these banks should be in the unbanked rural areas. Payment Banks cannot approve/ disburse loans or issue credit cards. Payment banks can offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.
List of Payment Banks in India
FINO PayTech Paytm, Reliance Industries, Aditya Birla, Nuvo India Post, Tech Mahindra, Airtel M Commerce Services,National Securities Depository, Cholamandalam Distribution Services, Sun Pharmaceuticals, Vodafone M-Pesa ,Department of Posts

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