{"id":9631,"date":"2024-08-26T12:22:00","date_gmt":"2024-08-26T12:22:00","guid":{"rendered":"https:\/\/www.nextias.com\/blog\/?p=9631"},"modified":"2024-08-27T12:10:45","modified_gmt":"2024-08-27T12:10:45","slug":"payment-banks","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/blog\/payment-banks\/","title":{"rendered":"Payment Banks: Meaning, Features &amp; More"},"content":{"rendered":"\n<p><em><strong>Payment Banks<\/strong> have emerged as a transformative idea in India&#8217;s banking landscape. By offering accessible, affordable, and secure banking services, they are promoting the cause of financial inclusion. This article aims to study in detail the concept of <strong>Payment Banks in India, its meaning, features, functions, significance, and other related aspects<\/strong>.<\/em><\/p><div id=\"ez-toc-container\" class=\"ez-toc-v2_0_56_1 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#What_are_Payment_Banks\" title=\"What are Payment Banks?\">What are Payment Banks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Objectives_of_Payment_Banks\" title=\"Objectives of Payment Banks\">Objectives of Payment Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Features_of_Payment_Banks_in_India\" title=\"Features of Payment Banks in India\">Features of Payment Banks in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Target_Customers_of_Payment_Banks\" title=\"Target Customers of Payment Banks\">Target Customers of Payment Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Conditions_Prescribed_for_Payment_Banks_in_India\" title=\"Conditions Prescribed for Payment Banks in India\">Conditions Prescribed for Payment Banks in India<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Differences_between_Payment_Banks_and_Small_Finance_Banks\" title=\"Differences between Payment Banks and Small Finance Banks\">Differences between Payment Banks and Small Finance Banks<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Role_of_Differentiated_Banks_in_India\" title=\"Role of Differentiated Banks in India\">Role of Differentiated Banks in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.nextias.com\/blog\/payment-banks\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-f99cf2e5fc0d2f20ce23ea95346ecf7c\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"What_are_Payment_Banks\"><\/span><strong>What are Payment Banks?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Payment Banks<\/strong> are non-full-service banks whose main objective is to accelerate financial inclusion.<\/li>\n\n\n\n<li>Payments bank comes under a differentiated bank license as they cannot offer all the services that a commercial bank offers.<\/li>\n\n\n\n<li>They are a type of Differentiated Banks in India.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>What are Differentiated Banks?<\/strong><br><br>&#8211; Differentiated Banks under the <a href=\"https:\/\/www.nextias.com\/blog\/banking-system\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/banking-system\/\"><strong>Indian Banking System<\/strong><\/a> refer to those banks that cater to a specific segment of customers.<br>&#8211; The concept of Differentiated Banks was introduced in the Banking System in India by the RBI in 2013.<br>&#8211; It was introduced on the basis of recommendations of the Nachiket Mor Committee in order to offer specialized services or unique products designed specifically to suit a particular sector.<br><br><strong>Read our detailed article on<\/strong> <strong><a href=\"https:\/\/www.nextias.com\/blog\/differentiated-banks\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/differentiated-banks\/\">Differentiated Banks in India<\/a><\/strong>.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-0641053e6574ef0a1372969f13d701e3\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Objectives_of_Payment_Banks\"><\/span><strong>Objectives of Payment Banks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The primary objective of payments banks is to promote financial inclusion by providing payments\/remittance services and small savings accounts to small businesses, migrant labour workforce, low income households, other unorganised sector entities and other users.<\/li>\n\n\n\n<li>Government itself decided to establish Indian-post payment banks.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-b4412d4506ec8fe548706782299724f2\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Features_of_Payment_Banks_in_India\"><\/span><strong>Features of Payment Banks in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>They do not lend to customers, and instead, deploy their funds in bank deposits and government papers.<\/li>\n\n\n\n<li>They can accept demand deposit, issue ATM\/debit cards but not credit cards.<\/li>\n\n\n\n<li>They mainly deal in remittance services and accept deposits of up to `1 lakh.<\/li>\n\n\n\n<li>They can\u2019t give loans. They can invest depositor\u2019s money in Government securities (G-sec) only.<\/li>\n\n\n\n<li>The minimum initial contribution to equity capital of of promoters of a Payment Bank will have to be at least 40% for the first five years.<\/li>\n\n\n\n<li>Although they\u2019re allowed to sell mutual funds, insurance and pension products, accept utility bill payments etc., to keep branch operations profitable.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-4631aa7a0661eb833ee3173f0aa2f757\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Target_Customers_of_Payment_Banks\"><\/span><strong>Target Customers of Payment Banks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Primary target customers of Payment Banks include the poor, migrants, and unorganized workers wanting to send remittances home.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-0d3e98ca8749c1b591582ada9383ce2a\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Conditions_Prescribed_for_Payment_Banks_in_India\"><\/span><strong>Conditions Prescribed for Payment Banks in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Maximum balance per customer: \u20b91 lakh,<\/li>\n\n\n\n<li>Minimum Leverage ratio 3% i.e., liabilities should not exceed 33 times of its net worth.<\/li>\n\n\n\n<li>They are allowed to invest the money received from customers\u2019 deposits only into government securities.<\/li>\n\n\n\n<li>They cannot accept NRI deposits.<\/li>\n\n\n\n<li>They have to maintain a Cash Reserve Ratio (CRR).<\/li>\n\n\n\n<li>They need to invest a minimum of 75% of their \u201cdemand deposit balances\u201d in Statutory Liquidity Ratio (SLR)-eligible Government securities or Treasury Bills with maturity up to one year.<\/li>\n\n\n\n<li>They can to hold a maximum of 25% of their funds with other scheduled <a href=\"https:\/\/www.nextias.com\/blog\/commercial-banks\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/commercial-banks\/\"><strong>commercial banks<\/strong><\/a> in the form of current and time\/fixed deposits for operational purposes and liquidity management.<\/li>\n<\/ul>\n\n\n\n<div class=\"wp-block-buttons alignwide is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-16018d1d wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-75 is-style-round\"><a class=\"wp-block-button__link has-text-align-center wp-element-button\" href=\"https:\/\/www.nextias.com\/classroom-courses\/gs-economy-through-questions?utm_source=google&amp;utm_medium=blog&amp;utm_campaign=utm_gs_economy_blog\" style=\"border-radius:27px\"><strong>GS Economy Through Questions Course for CSE Mains<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-e0100bab5cb74918f0f526971ecc6e95\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Differences_between_Payment_Banks_and_Small_Finance_Banks\"><\/span><strong>Differences between Payment Banks and Small Finance Banks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#ebecf0\"><thead><tr><th>Criteria<\/th><th>Payment Banks<\/th><th>Small Finance Banks<\/th><\/tr><\/thead><tbody><tr><td><strong>Registration and Licensing<\/strong><\/td><td>Registered under Companies Act, 2013 Licensed under Banking Regulation Act, 1949<\/td><td>Registered under Companies Act Licensed under Banking Regulation Act, 1949<\/td><\/tr><tr><td><strong>Eligibility<\/strong><\/td><td>Pre-paid Payment Instrument (PPI) Providers, Resident individuals; NBFCs; Telecom Companies, super-market chains, public sector entities etc.<\/td><td>Resident Indians, Private Companies, Societies, NBFCs, MFIs, Local Area Banks<\/td><\/tr><tr><td><strong>Minimum Capital Requirements<\/strong><\/td><td>\u20b9100 crores<\/td><td>\u20b9100 crores. (To be increased to \u20b9200 crores within 5 years)<\/td><\/tr><tr><td><strong>FDI Allowed<\/strong><\/td><td>Yes. Up to 74%<\/td><td>Yes. Up to 74%<\/td><\/tr><tr><td><strong>Accept Deposits<\/strong><\/td><td>Only Demand Deposits. No Fixed Deposits and NRI Deposits<\/td><td>Yes<\/td><\/tr><tr><td><strong>Restrictions on Deposits<\/strong><\/td><td>Up to \u20b91 Lakhs<\/td><td>No Restrictions<\/td><\/tr><tr><td><strong>Deposit Insurance Available?<\/strong><\/td><td>Yes<\/td><td>Yes<\/td><\/tr><tr><td><strong>Can Lend Loans<\/strong><\/td><td>No<\/td><td>Yes. At least 50 per cent of its loan portfolio must consist of loans and advances of up to \u20b925 lakh.<\/td><\/tr><tr><td><strong>Issue Debit\/Credit Card<\/strong><\/td><td>Only Debit Card. No Credit Card<\/td><td>Both can be issued<\/td><\/tr><tr><td><strong>Set up based upon recommendations of<\/strong><\/td><td>Nachiket Mor Committee<\/td><td>Nachiket Mor Committee<\/td><\/tr><tr><td><strong>Committee to Evaluate Applications for License<\/strong><\/td><td>Nachiket Mor Committee<\/td><td>Usha Thorat Committee<\/td><\/tr><tr><td><strong>Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) Applicable<\/strong><\/td><td>CRR Applicable; SLR: 75% of Net Demand and Time Liabilities (NDTL)<\/td><td>CRR and SLR Applicable<\/td><\/tr><tr><td><strong>BASEL Norms Applicable<\/strong><\/td><td>Yes. 15% of Risk Weighted Assets (RWAs)<\/td><td>Yes. 15% of Risk Weighted Assets (RWAs)<\/td><\/tr><tr><td><strong>Priority Sector Lending (PSL) Norms Applicable<\/strong><\/td><td>No. Can&#8217;t lend Loans<\/td><td>Yes. Target: 75%.<\/td><\/tr><tr><td><strong>Examples<\/strong><\/td><td>Airtel, India Posts Payment Bank, Paytm, FINO etc.<\/td><td>Ujjlvan, Utkarsh, Jana, Au etc.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>Read more:<\/strong> <a href=\"https:\/\/www.nextias.com\/blog\/small-finance-banks\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/small-finance-banks\/\"><strong>Small Finance Banks (SFB): Meaning, Features &amp; More<\/strong><\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-50ce6bf89c6dfa90e6380997583cb388\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Role_of_Differentiated_Banks_in_India\"><\/span><strong>Role of Differentiated Banks in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Financial Inclusion:<\/strong> By targeting specific customer bases and regions, these banks play a crucial role in bringing a large chunk of the population into the formal banking system.<\/li>\n\n\n\n<li><strong>Economic Growth:<\/strong> By providing credit facilities to MSEs, these banks fuel economic growth at the grassroots level, supporting employment and wealth creation in rural and semi-urban areas.<\/li>\n\n\n\n<li><strong>Promoting Banking Habits:<\/strong> Increased access to deposits and basic financial products fosters a culture of saving and investment.<\/li>\n\n\n\n<li><strong>Financial Innovation:<\/strong> These banks have introduced innovative banking and financial solutions especially designed to the needs of their customers.\n<ul class=\"wp-block-list\">\n<li>For example, payment banks have leveraged mobile technology to facilitate easy and secure transactions, helping to spread digital banking across India.<\/li>\n\n\n\n<li><strong>Healthy Competition:<\/strong> The presence of differentiated banks fosters competition in the banking sector, ultimately benefiting all customers with better rates and services.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-text-color has-link-color wp-elements-d0adc4bd9eb2e9b9b187dc32f0e06642\" style=\"color:#015aa7\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Payment Banks<\/strong>, as a novel concept in the Indian banking sector, have been playing a pivotal role in providing financial services to the underbanked and unbanked sections of society. By catering to the needs of the underserved, they have contributed to economic growth and development. As the sector matures, it is expected to play an even more significant role in empowering the marginalized sections of society. <\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Payment Banks have emerged as a transformative idea in India&#8217;s banking landscape.<\/p>\n","protected":false},"author":9,"featured_media":9652,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[62],"tags":[72],"class_list":["post-9631","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-indian-economy","tag-gs-3"],"_links":{"self":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/9631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/comments?post=9631"}],"version-history":[{"count":7,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/9631\/revisions"}],"predecessor-version":[{"id":10739,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/posts\/9631\/revisions\/10739"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/media\/9652"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/media?parent=9631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/categories?post=9631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/blog\/wp-json\/wp\/v2\/tags?post=9631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}