The notion of Payment Bank has gotten both outstanding and reaching hooks in its banking circle industry in the recent era. Payment Bank refers to a recently created RBI model that accelerates transactions, similar to a traditional bank, with the exception of issuing credit cards and lending. To launch an online Payment Bank in India, a firm or an NBFC must first obtain a Payment Bank License from the Reserve Bank of India.
Furthermore, the concept of a Payment Bank has gained a lot of traction because it has the power to provide extensions to the government’s financial targets. It should also be highlighted that the concept of demonetization dramatically transformed the Indian economy. As a result, individuals are relying more on digital payment gateways and paperless transactions, which has boosted the popularity of E-wallets and Mobile Wallets,
Payment Banks
The Reserve Bank of India first proposed the concept of a specialised bank model in 2013. Payments Bank was the name given to the institution. It should be mentioned that, like other Banks, a Payment Bank offers a variety of financial services, with the exception of credit cards and loan facilitation. The applicant organisation must receive a Payment Bank License from the Apex Bank in order to operate a Payment Bank in India.
In addition, the Reserve Bank of India will grant the applicant company a Payment Bank License under Section 22 of the Banking Regulations Act 1949. The applicant is permitted to engage in banking activities under the terms of the licence. The phrase “banking activities” has the same meaning as it does under the Banking Regulation Act’s section 5 (b) and 6 (1) (a) to (o) provisions.
The Indian economic structure has been fully reframed by demonetization. People are depending more on paperless transactions nowadays and tend to use digital payment portals. It has given a sudden boost to earlier outcast e-wallets or mobile wallets. Payment banks are the main niche of such online gateways. One needs to acquire a payment bank license to start any payment gateway. Payment Bank is approved by the Reserve Bank of India (RBI). The maximum amount of money currently reserved for these types of Banks is INR 1 lakh per client which will be continuously upgraded. Both current and savings accounts can be operated under this Bank. Payment banks shall be licensed under the Companies Act, 2013 as a public limited company. And accredited under Section 22 of the Banking Regulation Act, 1949, subject to certain licenses to regulate their operations, in particular with regard to the reception of payments necessary and the provision of services. They can provide a service that links to bank cards, online banking, and ATM cards Payment Bank is also known as a split Bank will be allowed to set up shops (branches), ATMs, business books, etc. However, it will be limited to the activities authorized by the Bank under the Banking Regulation Act, 1949. The minimum amount paid by the bank to pay will be one hundred thousand. These payment banks are licensed and certified under a regulatory body
Payment Bank License Regulatory Structure
- Banking Regulation Act 1949.
- Companies Act 2013.
- Deposit Insurance & Credit Guarantee Corporation Act 1961.
- Foreign Exchange Management Act 1999.
- Payment & Settlement System Act 2007.
- Reserve Bank of India 1934.
Objective to give Payment Banks License
The core objective of the Payments Bank is to expand payments and financial services in a stable, technology-driven environment to all low-income households, small businesses, and migrant workers. The Reserve Bank of India aims to penetrate financial support through the support of payment banks in all remote areas of India. With a secure payment gateway for all transactions, it aims to redefine the Indian economy.
Key Benefits of the Payment Bank License in India
Zero Balance Account- One of the major advantages of a payment bank is that the account holder is not forced to maintain a certain amount as the minimum needed amount. That means that a person’s account balance can be zero.
Increased Interest Rates- The cost savings resulting from operational efficiency are passed on to the client in the form of increased interest.
Convenience- Another important advantage of a Payment Bank is that, thanks to its extensive distribution network, telecom service providers and mobile wallets can turn their retail locations into distinct banking sites.
Secure and Safe- The Reserve Bank of India developed the concept of a payment bank as one of the secure forms of online transaction due to 4 factor authentications.
Account Number and the Mobile Number are Same- Normally, this is a minor feature, but it improves the level of convenience for cardholders, particularly small business traders, merchants, and others, because they do not need to remember any other number like an account number to conduct transactions.
Offers for Cashback and Discounts- A payment bank, like any other mobile wallet, provides the customer with a variety of discount and rebate incentives.
Eligibility to get Payment Bank License
As a minimum pay-up capital of 100 crores is required, the Reserve Bank of India has laid down a long list of qualified players for the Payment Bank license. Let’s take a sneak peek at the qualifying promoters who can execute the licensing procedure for the Payment Bank:
- Current non-bank Prepaid Payment Instrument (PPI)issuers approved under the 2007 Act on Payment and Settlement Systems.
- NBFCs ( Non-Banking Finance Companies)
- Professionals or Individuals
- Corporate Business Correspondents (BCs)
- Supermarket Chains
- Public Sector Entities
- Real Sector Cooperatives owned by residents
- Mobile Telephone Companies
- Companies (Public companies)
- In addition, if it has a joint venture with an existing scheduled commercial bank, a promoter/group of promoters may be eligible for a Payment Bank License.
Capital Requirements in India for Obtaining a Payment Bank License
- To begin payment in India, the applicant company must have a minimum paid-up equity of Rs 100 crore.
- A payment bank must have a minimum CAR (Capital Adequacy Ratio) of 15% of its total RWA in India (Risk Weighted Assets). The same is subject to any additional amounts that the RBI may specify from time to time.
- At least 7.5 percent of total Risk Weighted Assets must be in Tier I Capital.
- Tier II Capital should be limited to no more than 100 percent of Tier I Capital.
- A Payment Bank is not permitted to handle complex items. The Capital Adequacy Ratio (CAR) is calculated using the Basel Committee’s Standardized Approaches.
Information to be provided to the Reserve Bank of India
Individual Partner Information
The following information is requested from the Individual Partner:
- The promoter’s name
- of PAN (Permanent Account Number)
- The partner’s date of birth.
- The Promoter’s Personal Experience
- Status as a resident.
- Details about the parents.
- Details about the branch
- Details about your current bank account, as well as your credit facilities.
- Expertise in various fields.
- The company’s track record, as well as its financial worth.
Information about the entity that is promoting the bank
The following information is required from the Entity Promoting the Bank:
- The Entity Promoting the Bank’s Shareholding Pattern
- The Entity Promoting the Bank’s Memorandum of Association (MOA).
- The Entity Promoting the Bank’s Articles of Association (AOA).
- Financial Statements of the entity promoting the bank for the preceding five financial years.
- ITRs (Income Tax Returns) from the past three fiscal years.
Activities Permitted by Obtaining Payment Bank License in India
- A Payment Bank is allowed to take deposits up to a certain amount. Furthermore, the term “deposits” encompasses both current deposits made by small-scale merchants and individual savings bank deposits.
- Non-resident individuals (NRIs) are not permitted to make any deposits in Payment Banks.
- Customers of a Payment Bank are eligible to receive ATM or Debit Cards.
- Payment banks are not permitted to participate in lending activities.
- A Payments Bank, like any other bank, must conduct its own Know Your Customer (KYC)/Anti Money Laundering (AMT)/Combating Financial Terrorism (CFT) exercise.
- A payment bank is not permitted to provide loan and visa administration services in India.
- A Payment Bank can provide payments and remittance services through ATMs, Business Correspondents, and mobile banking. It should also be mentioned that remittance and payment services may include the acceptance of funds at one end through various channels such as branches and BCs, as well as cash payments at the other end.
- The Payment and Settlement Instrument Act of 2007 requires a Payment Bank to issue Prepaid Payment Instruments (PPIs) in compliance with the instructions provided.
- Based on the RBI’s standards, a Payment Bank is eligible to provide Internet Banking Services; a Payment Bank is also eligible to become a Business Correspondent of another bank.
- A Payment Bank can take remittances from scheduled banks using a payment mechanism approved by the Reserve Bank of India, such as RTGS/NEFT/IMPS.
- Cross Border Remittance Transactions in the form of personal remittances are allowed to be handled by a Payment Bank.
- Payment Banks are not permitted to form subsidiaries to carry out the activities and operations of a non-bank financial institution (NBFI).
- Payment banks are permitted to pay utility bills on behalf of their customers as well as the general public.
- Other non-risk-sharing simple financial services operations are permissible for a Payment Bank, but only with RBI clearance. It also has to meet the regulatory sector’s standards for such products.
Process for obtaining a Payment Bank License
- The applicant must first register a Public Limited Company under the terms of the Companies Act 2013.
- Now, submit an application to the Apex Bank’s CGM (Chief General Manager) for authorization to obtain a Payment Bank License.
- The EAC (External Advisory Committee) is then tasked with evaluating the submitted application. The applicant must then be summoned to verify the information provided by them.
- If the application company meets all of the requirements, the RBI will grant a Payment Bank License.
- Following the final phase, the applicant’s name will be published on the RBI’s official website.
- Finally, after receiving Apex Bank’s primary approval to operate as a payment bank, the applicant company must form a bank within 18 months of the license’s issue.
FAQs
What is a Payments Bank's main focus?
The payments bank’s main focus is on boosting the migrant labour force, launching modest savings accounts for small business owners, and assisting unorganized sector employees and low-income people.
Is it possible for a Payment Bank to accept Demand Deposits?
Yes, a payment bank can accept up to Rs 1 lakh in current and savings deposits per customer.
What are Payment Banks and What Do They Do?
A payment bank’s major goal is to ensure financial inclusion by providing remittance and payment services to underserved groups.
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