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Home >Money >Personal Finance >Will the 1 lakh increase in balance in payments banks help customers?

The Reserve Bank of India (RBI) on Wednesday raised the maximum balance that can be held with a payments bank from 1 lakh to 2 lakh.

The payments banks that are operating in this space are Paytm Payments Bank, India Post Payments Bank, Airtel Payments Bank, Fino Payments Bank, Jio Payments Bank and NSDL (National Securities Depository Ltd) Payments Bank.

Payments banks are not allowed to give out loans.

Adhil Shetty, chief executive officer, Bankbazaar.com, said that the main avenue for generating revenue for payments banks is either via their deposits in government securities (G-Secs) and small commercial banks or via the merchant discount rate or MDR.

The MDR is the fee charged to a merchant for taking payment from their customers through wallets, debit or credit cards, or the unified payments interface (UPI).

Initially, the payments banks were offering higher interest rates on customer deposits
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Initially, the payments banks were offering higher interest rates on customer deposits

In past years, looking at stiff competition, four payments banks backed out from the business. These are Sun Pharma, Cholamandalam, Tech Mahindra and Aditya Birla payments banks.

Initially, the payments banks were offering higher interest rates on customer deposits. But now, these rates have been reduced drastically. Their rates have come down to as low as 2.5% per annum on savings account deposits.

However, when it comes to making deposits, the payments banks are considered reasonably safe options, especially since your money is below the 5 lakh guarantee provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Gaurav Gupta, founder and chief executive officer, MyLoanCare, said, “Till date, payments banks could take 1 lakh per depositor and the same is covered under the insurance scheme of the DICGC with a limit of 5 lakh. From Wednesday, payments banks can take 2 lakh per depositor, which will still be covered under the DICGC coverage of 5 lakh."

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