New Delhi: The government on Monday launched the India Post Payments Bank (IPPB), a basic financial services facility, as a pilot in Raipur and Ranchi with plans to scale it up to 650 branches by the end of September.

Payments banks accept limited deposits and offer payment services but do not offer loans, unlike commercial banks.

IPPB is the second payments bank to start operations after Airtel Payments Bank, which launched on 12 January. IPPB received a licence from the Reserve Bank of India (RBI) on 20 January. A third entity, Paytm, has also been given a payments bank licence by RBI, and is expected to launch soon.

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“Payments banks might pose a challenge to traditional banks for small amount deposits due to lower overhead cost," finance minister Arun Jaitley said at the IPPB launch. “More than 155,000 post offices of India Post will now start operating as payment banks and prove to be game changer for financial inclusion in the country."

As mandated by RBI, these new banks will focus on providing basic financial services, including payments of all sorts, including social security and utility bill payments, remittance services, current and saving accounts with a balance of up to Rs1 lakh; distribution of insurance, mutual funds and pension products, and acting as business correspondent to other banks for credit products, especially in rural areas and among the underserved segments of the population.

India Post plans to open 650 new branches in its first phase by September. Currently, the department of post has an existing network of around 155,000 post offices. The new branches will be co-located with existing post offices.

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“The idea is that the 650 branches will be in located in postal district headquarters and all the branches under that particular head post office will be enabled by the payment bank services," said A. P. Singh, interim managing director and chief executive officer of IPPB.

“Apart from the vision and structure, the success of the payments bank will depend on Gramin Dak Sevaks, postmen and the unsung postal assistants who will take banking to doorsteps," he added.

IPPB will offer three distinct accounts to its customers: Safal, the regular account; Sugam, a basic savings bank deposit account (BSBDA); and Saral, BSBDA-Small.

While the Safal account is packed with features, Saral is aimed at people with limited banking experience. All three bank account options will request its customers to make a Rs100 initial minimum deposit, with no minimum balance requirements. Both Safal and Sugam need KYC (know your customer) details for verification and minimum age of 10 years, but Saral can be opened by anyone above the age of 10 years without KYC.

Interest rates have been fixed as 4.5% if the quarterly average balance is up to Rs25,000, 5% if it is between Rs25,000 and Rs50,000, and 5.5% if above Rs50,000.

There are no charges on cash withdrawals, unlike Airtel Payments Bank.

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Earlier this month, Airtel Payments Bank launched nationwide operations, offering 7.25% interest on savings, which is more than the maximum of 7% paid by State Bank of India, the country’s largest bank, on fixed deposits.

Paytm’s payments bank is expected to start operations in February.

Other companies, including Aditya Birla Nuvo, Fino PayTech, National Securities Depository, Reliance Industries Ltd and Vodafone m-pesa, which received the RBI’s in-principle approval to set up payments banks in 2015, are expected to roll out their services soon.

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