Simplified banking, for the masses
The Reserve Bank of India, on Sunday, said it will come out with the norms for small and payments banks next month. These banks are aimed at augmenting the reach of financial inclusion in the country. A reckoner:
What are payments banks?
They banks which will provide deposit and payment services through current and savings accounts.
What is their objective?
As per RBI’S draft guidelines, payments banks seek to further financial inclusion by providing small savings accounts, and payments and remittance services to migrant labour workforce, low income households, small businesses and unorganised sector entities.
Where did the idea come from?
Payments banks (PBS) were recommended by the Nachiket Mor Committee on financial inclusion in order to address the urgent need for access to payment and remittance services. These banks were to be based on the pre-paid payment instruments (PPPI).
Who can apply for licences?
The existing non-bank PPI issuers, non-banking finance companies (NBFCS), corporate BCS, mobile telephone companies, super-market chains, companies, real sector cooperatives and public sector entities may apply to set up a payments bank. Even banks can take equity stake in a payments bank to the extent permitted by the RBI.
How will the payment banks work?
The user would be able to deposit and take out money from a PB through various channels such as bank branches, business correspondents (BCS), mobile banking and ATMS. And unlike a regular bank PBS cannot lend money.
What is a business correspondent (BC)?
BC is an arrangement whereby an institution/person carries out the services of a bank such as opening of an account, deposit/ remittance remotely by the use of card technology, kiosk banking etc. As per RBI’S draft two payments banks will be able to function as BCS for each other.
How are payments banks different from non-banking finance companies (NBFC)?
NBFC’S cannot accept demand deposits, which is the principle feature of payments banks, and cannot issue cheques and demand drafts drawn on their names. However, NBFC’S are allowed to give out loans which PBS cannot.
If they cannot lend money where will the revenue come from?
The revenues will come from investing the deposits in interest paying government securities.
Apart from that the PB model is based upon highvolumes of low-value transactions, thereby transaction charges will also generate revenues. Payments bank can accept a maximum deposit of ₹1,00,000 per person.
How will the payments bank help financial inclusion?
As PBS can function as BCS of other banks it will help in increasing the number of service points for customers.
Along with that, PBS will be stipulated to have 25% of their access points in rural areas with populations less than 10,000 people (or rural centres).
This is similar to the rule applicable on regular banks the difference being PBS will not have to open physical centres but can operate in these regions through BCS and other networks making it costefficient and easier to service these areas.
Along with that, deposit and remittance facilities of PBS are envisaged to work on feature phones which will help in increasing penetration.