Payments banks to come soon: RBI

Mumbai: India’s first payments bank, which will provide deposit and payment services but not extend loans, will be ready soon, H.R. Khan, a central bank deputy governor, said at a banking conference. The concept of payments banks was first proposed by a Reserve Bank of India (RBI) committee led by board member Nachiket Mor.

Payments banks, which will bring financial services to unbanked areas of the country, can start operations with a capital of just ₹ 50 crore, since all their money will be invested in safe government securities. In contrast, a full-service bank requires an entry capital of ₹ 500 crore. They will be required to comply with all RBI guidelines for commercial banks.

The Mor committee had also recommended permitting existing banks to create subsidiaries to operate payments banks.

Later, Mor had clarified that payments banks may be created by converting prepaid payment issuers (PPIs). These companies provide cards that customers can use to make payments with the money stored in them. There are 27 PPIs in the country, including Itz Cash Card Ltd, Oxigen Services (India) Pvt. Ltd and Airtel mCommerce Services Ltd.

The entry of payments banks is also seen as a step closer to moving towards a differentiated banking licence regime, where the central bank issues licences to new banks to undertake specific banking operations.

In April, while issuing in-principle approval for IDFC Ltd and Bandhan Financial Services Pvt. Ltd to set up commercial banks, RBI governor Raghuram Rajan had indicated that the central bank would kick off the process of issuing differentiated banking licences soon.

The apex bank will also issue licences on a continuous basis to qualified aspirants instead of opening the licensing window after long intervals, Rajan had said.

The payments bank route is critical for India Post, which failed to secure a banking licence. While issuing the licences in April, RBI had said that it would consider India Post’s application separately in consultation with the government. On 22 May, governor Rajan said that India Post could begin as a payments bank.

Promoting financial inclusion, or the process of spreading banking services, is critical in India, where more than half of the adult population still do not have access to banking services.

RBI first introduced a three-year financial inclusion programme in April 2010 that saw banks opening outlets in 200,000 villages. Subsequently, it launched the second phase of the programme for 2013-2016.

Khan also said RBI is in discussion with the government to revamp inflation-indexed bonds to attract more retail investors. Inflation-indexed bonds were introduced last year by the central bank but were not well received due to its complex structure. “We had launched inflation-indexed bonds that were not successful. We are coming out with the revised version,” Khan said.

Reuters and PTI contributed to this story.