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Tuesday, August 25, 2015

Know About Payment Bank

Know About Payment Bank

A payments bank is a type of non-full service niche bank in India. A bank licensed as a payments bank can only receive deposits and provide remittances. It cannot carry out lending activities. This type of bank was created to help India reach its financial inclusion targets.  This type of bank is targeted at migrant labourers, low income households, small businesses, and other unorganised sector entities.

The minimum capital requirement is ₹100 crore. For the first five years, the stake of the promoter should be 40% minimum. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India. The voting rights will be regulated by the Banking Regulation Act, 1949. The voting right of any shareholder is capped at 10%, which can be raised to 26% by Reserve Bank of India (RBI). Any acquisition of over than 5% will require approval of the RBI. The majority of the bank's board of director should consist of independent directors, appointed according to RBI guidelines.

The bank should be fully networked from the beginning. The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will be capped at ₹1,00,000 per customer, but it may be raised by the RBI based on the performance of the bank. The bank cannot undertake lending activities. 25% of its branches must be in the unbanked rural area. The bank must use the term "payments bank" in its to differentiate it from other types of bank. The banks will be licensed as payments banks under Section 22 of the Banking Regulation Act, 1949 and will be registered as public limited company under the Companies Act, 2013.

On 23 September 2013, Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, headed by Nachiket Mor, was formed by the RBI. On 7 January 2014, the Nachiket Mor committee submitted its final report.Among its various recommendations, it recommended the formation of a new category of bank called payments bank.

On 17 July 2014, the RBI released the draft guidelines for payment banks, seeking comments for interested entities and the general public. On 27 November, RBI released the final guidelines for payment banks.

On February 2015, RBI released the list of entities which had applied for a payments bank licence. There were 41 applicants. It was also announced that an external advisory committee (EAC) headed by Nachiket Mor would evaluate the licence applications.

 On 28 February 2015, during the presentation of the Budget it was announced that India Post will use its large network to run a payments bank. The external advisory committee headed by Nachiket Mor submitted its findings on 6 July 2015. The applicant entities were examined for their financial track record and governance issues.

On 19 August 2015, the Reserve Bank of India gave "in-principle" licences to eleven entities to launch payments banks:
1.Aditya Birla Nuvo
2.Airtel M Commerce Services
3.Cholamandalam Distribution Services
4.Department of Posts
5.FINO PayTech
6.National Securities Depository
7.Reliance Industries
8.Dilip Shanghvi, founder of Sun Pharmaceuticals
9.Vijay Shekhar Sharma, CEO of Paytm
10.Tech Mahindra
11.Vodafone M-Pesa

The "in-principle" licence is valid for 18 months within which the entities must fulfill the requirements. They are not allowed to engage in banking activities within the period. The RBI will consider grant full licences under Section 22 of the Banking Regulation Act, 1949, after it is satisfied that the conditions have been fulfilled.

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