The payments banks revolution
Small, no-frills banks have the potential to provide access to financial services for all Indians
With the Reserve Bank of India (RBI)’s in-principle approval to 11 payments banks, India has taken one big step forward on the road laid out seven years ago. In “A Hundred Small Steps", the Raghuram Rajan Committee on Financial Sector Reforms had made strong recommendations to change the interface between the financial sector and the poor, stating, “the most important shift in paradigm is to alter the emphasis somewhat from the large-bank-led, public-sector-dominated, mandate-ridden, branch-expansion-focused strategy for inclusion". Among other proposals, the report had recommended entry of more private deposit-taking small banks and use of technology, particularly mobile phones, to reduce costs. While the paradigm shift might have sounded quite revolutionary when it was set out, quite a few of its recommendations have materialized, changing the inclusion landscape. However, even with the recent phenomenal success of the Pradhan Mantri Jan-Dhan Yojana in improving access to financial services, usage by low-income consumers remains a challenge. It is here that the payments banks are expected to make their impact.