Introduction

•New model of banks, conceptualized by RBI.

•It is like other commercial bank, but operates on a
small scale without involving any credit risk.
• Can accept a restricted deposits which is limited to rs
1 lakh till now, where RBI have mentioned that in
future it may proposed to increase the limit.
History
•According to RBI, almost 60% of the people of the
country are still not connected with the banking sector,
which includes people from lower income households,
small businesses etc.
•Sept 2013, RBI constituted a committee headed by Dr.
Nachiket Mor to study comprehensive financial services
for low income households and small businesses
•In Jan 2014, the committee submitted the report and
one of the key suggestion was to introduce Payments
Bank which will cater to the needs of lower income
groups.
Objectives of Payment banks
•Increase financial inclusion by having small savings
account and remittance services to lower income
groups, small business and other organizational
entities.
•Paperless banking: No cheque, No Demand Drafts,
No pay-in-slips or cash withdrawal slips.
•Increase level of financial services to remote areas:
It will lead to increase in penetration level of
financial services to remote areas.
Features of Payments Banks
• Payments are given the status of scheduled banks under the
section 42(6)(a) of the RBI act, 1934, however the companies
have to use the word “Payments Bank” to differentiate it from
the others.
•It can accepts deposit upto rs 1 lakh
•It can set up branches and ATMs and can issue debit cards and
internet banking services to its customers.
•It can sell 3rd party products like insurance, pension products
and mutual funds etc
•Payments bank can open both current and savings accounts for
their customers.
•Payments bank cannot provide loans or lending services to its
customers, which includes credit card facilities too.
•FDI allowed in Payments bank is upto 74%
Restrictions
•Company should have minimum capital of rs 100 crore
to set up a Payments bank
•Payments bank should be fully networked and technology
driven from the time of its commencement.
•25% of its branches must be in unbanked rural areas.
•Payments bank will have to invest minimum 75% of its
demand deposits in govt. treasury / securities bills with
maturity upto one year and hold maximum 25% in current
and fixed deposits with other commercial for operational
purposes.
•The companies have to use the word “Payments Bank” to
differentiate it from the others.
•Payments bank cannot open subsidiaries to provide Non-
Banking Financial services
Advntages
•Reduced currency circulation: by making it digital
•Low Risk Model: No credit risk
•Low cost of Operations
•High reached to rural areas.
•Promote the use of other financial services.
Challenges
•Limited earning potential: because of no lending policy.
•High competition: With e-wallets and UPI.
•High setting up cost
•Irregular target segment
Current Scenario
•When these concept was first introduced there were 41
applicants, who were looking for the license.
•Out of which following 11 companies got the license:
1. Aditya Birla Nuvo Ltd.
2. Airtel M Commerce services ltd
3. Cholamandalam Distribution Services Ltd.
4. Department of Posts.
5. FINO Paytech Ltd
6. National Securities Depository Ltd.
7. Reliance Industries Ltd.
8. Sun Pharmaceuticals
9. Paytm
10. Tech Mahindra ltd
11. Vodafone M Pesa ltd
Current Scenario
•Out of these 11 companies now only following 6 companies
were operating now:
1. Airtel Payments Bank Ltd.
2. India Post Payments Bank Ltd.
3. FINO Payments Bank Ltd.
4. Paytm Payments Bank Ltd.
5. Jio Payments Bank Ltd.
6. NSDL Payments Bank Ltd.

• Many companies have surrendered their licenses by

citing profitability concerns, as bank’s profit came
mainly from its lending operations and profit generated
by other activities forms a very small percentage.
Additionally, one cannot expect them to thrive merely
on commission earned on making remittances.
• Experts are of the view that it is better to wind up
these banks or merge them with other commercial
banks to save depositors money.