Payment banks in India were introduced to increase financial inclusion and provide basic banking services to underserved populations. The Reserve Bank of India issued guidelines in 2014 allowing for licensing of payment banks. Payment banks can accept deposits up to Rs. 100,000 but cannot issue loans or credit cards. They must invest customer funds in low-risk government securities and provide remittance, debit card, and digital payment services. Eleven entities received licenses in 2015 to operate as payment banks with the goal of serving small businesses, migrants, and low-income households across India through innovative technology and business correspondent models.

1. Prospects of Payment Banks in
India
Group-1
Anurag Kunnel PGP/01/12
J.Shiva Kumar PGP/01/23
Manvender Dagar PGP/01/31

2. Introduction
• In order to speed up financial inclusion, finance minister Mr. Arun Jaitley said in his
budget speech (July,2014) that:
"RBI will create a framework for licensing small banks and other differentiated
banks.”
• These local area banks, payment banks and Small Banks are expected to meet
credit and remittance needs of small businesses, unorganized sector, low income
households, farmers and migrant work force.
• Within a week of the budget, RBI (Reserve Bank of India) had already issued
guidelines for licensing Payments and Small Banks.

3. What is a Payment Bank.
• A payments bank is a type of non-full service function bank of India.
• A bank licensed as a payments bank can only receive deposits and provide remittances.
• The banks can offer issuance of prepaid payment instruments, internet banking,
functioning as business correspondent for other banks.
• It cannot carry out lending activities. No credit lending is allowed for Payments Banks.
• Payments Banks cannot set up subsidiaries to undertake NBFC business.

4. Vijay Shekhar Sharma
Dilip Shantilal Shanghvi
In July, 2015 ,RBI gave license to 11 entities
out of total 41 applicants

5. Objectives of a Payment Bank
• The main objective of Payments Banks is to increase financial inclusion
(to get more people into the banking system) by providing Small
Savings Accounts, Payment or remittance services to low income
households / Labour, small businesses etc.
• Payments banks will provide basic banking services to people who
currently do not have a bank account, including millions of migrant
workers. Almost half of India’s population is unbanked.

6. RBI Guidelines for setting up a Payment Bank
• Eligibility criteria of Applicants – Prepaid payment instruments issuers,
NBFCs, Telecom companies, Supermarket Chains, Corporates etc.,
• The minimum capital requirement is Rs 100 crore
• They cannot issue Credit Cards.
• Payment Bank can not undertake Lending activities. They should not
offer loans.
• A Payments bank will be required to invest 75% of its demand deposits
balances in Government Securities (G-Sec) & Treasury Bills.
• They have to meet Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio requirements set by RBI.

7. Operation Guidelines by RBI
• The Payments Bank will be required to use the word “Payments” in its
name.
• The Payments Bank will be registered as a public limited company under
the Companies Act, 2013, and licensed under the Banking Regulation Act,
1949.
• Maintain Cash Reserve Ratio (CRR)
• Invest all its money in Government securities/Treasury Bills with maturity up
to one year that are recognized by RBI as eligible securities for maintenance
of Statutory Liquidity Ratio (SLR).

8. Scope of Activities
• Acceptance of demand deposits, i.e., current deposits, and savings bank deposits
restricted to holding a maximum balance of Rs. 100,000 per customer.
• Payments and remittance
services through various
channels including branches,
BCs and mobile banking
• Issuance of Pre-Payment
Instruments
• Issue ATM / Debit cards
• Internet banking
• Functioning as Business Correspondent (BC) of other banks – A Payments Bank may
choose to become a BC of another bank for credit and other services which it cannot
offer.

9. Level of Penetration

10. Payment
Bank
Remittances
Bharat Bill
Payment
System
Merchant
Transaction
Financial
Products
RFID Tag for
Toll Plaza
Mutual funds,
insurance and
pension
products
Payment &
Deposit
Product Strategy

11. Key Considerations for Payment Bank Players

12. Purpose
• Last mile gap between Bank Branch and
customer.
Technology
• Mobile Banking to reduce cost of customer acquisition and
service delivery.
Target
Customer
• Migrant labour workforce, low income households, small
businesses, other unorganised sector
Pillars of Future Prospects

13. Payment Banks
Strengths
• Deposits up to 100,000- Low cost of
funds
• Low funds involve- hence fraud risk
minimal
• Innovative delivery
Weaknesses
• Nothing new to offer
• Lack of awareness
• No existing customer base to leverage
• For new players- start from scratch
Payment Banks

14. Payment Banks
Opportunities Threats
• Technological threat
• Operational risks- cyber threat
• Interdependence upon efficiency of
auxiliary services
• Competition
• Large untapped market
• Low cost transactions
• Innovative products

15. 1. Customer friendly and tailor made
interfaces - public perception
2. Tie up with entities with local feel
3. Multi product and multi service BC model
4. Sharing of Government business of DBT on
fair sharing business model
5. Cyber strength
Pillars of Future Prospects

16. Recent Launches

17. You Know What, We Changed Our Mind!!

18. Thank You.