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Business News/ Market / Stock-market-news/  FAQs on payments banks
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FAQs on payments banks

RBI on Wednesday announced the first set of payments banks. Here's a quick look on how these banks would operate

Photo: ReutersPremium
Photo: Reuters

News: The commercial lending scenario of the country is all set to change. The Reserve Bank of India (RBI) on Wednesday announced the first set of payments banks and gave in-principle approval to 11 entities. This is the first time that the central bank has issued a differentiated bank licence. Till date, it has only issued universal banking licences.

Origin: The idea of such licences was mooted in the report of the Committee on Comprehensive Financial Services for Small Business and Low Income Households, submitted by a Nachiket Mor-led committee set up in 2013. These were envisioned keeping in view financial inclusion of the under-served and unserved population of the country.

What will it do?

The primary objective of the new entities will be to push financial inclusion and promote various schemes such as the Paradhan Mantri Jan Dhan Yojana and insurance schemes. It will offer small savings accounts and allow payments and remittance services to various sections of the society, especially the migrant labour workforce, low-income households, small businesses and the unorganized sector.

How will it operate?

The new entities have been created to accept deposits through basic bank accounts of up to 1 lakh from each individual. Though the entity may issue debit cards, it will not be allowed to issue credit cards. It can also distribute mutual fund units or insurance products which are non-risk in nature.

Interestingly, these new entities can become business correspondents of universal banks and offer services such as credit on banks’ behalf. The payments banks cannot undertake lending activities on their own.

How will it utilize its funds?

A payments bank will need to invest 75% of its funds in government securities or treasury bills with maturity up to one year and the minimum capital required to set up a payments banks is 100 crore. It can hold maximum 25% in current and fixed deposits with other scheduled commercial banks for operations and liquidity management.

Who can own a piece of the pie?

The licence winner’s minimum initial contribution to the paid-up equity capital should be 40% for the first five years from the commencement of business. The foreign direct investment (FDI) limit remains the same as that for private sector banks—74%. This effectively means that the FDI share for the first five years cannot exceed 60%.

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Published: 20 Aug 2015, 11:26 AM IST
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