In the month of August 2015, the RBI gave theatrical clearance to the 11 banks in the payment bank, in which there were big names – Reliance Industries, Aditya Birla, Tech Mahindra etc. Today we will discuss what the payment bank is about. In 2013, Nachiket Mor, who was the board member of RBI, had created a committee to promote small business and low income households in which payment banks were recommended. The idea of payment banks was like pre-paid instrument providers (PPI) but there were some differences between these two too.
Under PPI and Payment Bank: –
1. You give them money.
2. In return you have the facility of “digital wallet” which is under an app in your mobile.
3. You can use digital wallet for various payments like buying a claim, electricity bill, water bill, telephone bill, mobile recharge etc.
In 2013, the Nachiket Mor Committe was created to remove the limitations in the PPI so that payment banks could be introduced. What was wrong with the PPI, which led to the concept of Payment Bank?
a) PPI is regulated by the Payment and Settlements Act of 2007 (RBI).
b) PPI does not give you money on the accumulated money, which is not beneficial for poor and small-business people.
c) Rs. Money can be deposited up to 50000.
d) You can not withdraw your accumulated money. They will have to spend you through the card.
e) Whenever you spend money with its digital wallet, every transaction will take a 0.5% charge.
d) Examples of PPI are many – like Airtel Money, Flipkart Wallet, PayTM, Zipcash etc.
e) You can not transfer money deposited in Airtel Money to Flipkart Wallet or vice versa.
Considering the disadvantages of many PPIs (Pre-paid Instrument Providers), the Nachiket Committee recommended / guided that –
1. Now RBI should stop issuing licenses to companies for PPI.
2. If a company wishes to apply for such a facility, then apply it for the payment bank’s license.
But why the payment bank?
a) Pre-paid Instrument Providers (PPI) = crap. Do not give interest on money deposited.
b) Basic concept is good because you pay money in payment wallet and pay cashless and cheque-less, without ATM, without credit card, to buy or pay a bill.
Theoretically PPI Model is good but it is the biggest drawback of not giving interest on accumulated money. Hence the concept of “payment bank” was brought on the recommendation of Nachiket Babu (Under the banking regulation Act).
Finally, in 2015, big companies (Reliance Industries, Aditya Birla, Tech Mahindra etc.) were approved to act as a payment bank. Now these institutions will act as a bank. Payment Bank is a step to promote mobile banking. Traditionally, we take away the money from the bank branch and go to the bank branch and do not know what to do … The payment bank was introduced to simplify it. Or it can be said that this was an initiative to connect with customers through mobile.
But, Is all the banking work possible through the payment bank?
1. Can not offer payment bank loan
2. You will also get interest on your accumulated money (this facility did not give PPI). You can deposit up to 1 lakh in these banks (which was 50 thousand in PPI)
3. You can transfer money, transfer it to me or in your neighboring bank account.
4. Automatic payment of bills can be made, cashless and checkless payments can be done through mobile in the market.
5. Payment banks can issue debit cards or debit cards which can be used in ATM.
6. Forex cards can also be issued. If the forex card says …. If you go abroad you can withdraw money from the ATM.
7. Which is the charge of Forex Services. It can be less than the rate of the bank.
The Payment Bank has to maintain the CRR (Cash Reserve Ratio) in the same way as the RBI controlled other government or private banks. Payment Bank can invest on SLR securities. If you want to know more about CRR and SLR, click here.
What are the institutions which RBI has allowed these facilities to be made as a payment bank?
- Aditya Birla Nuvo Ltd
- Airtel M Commerce Services Ltd (First company to get Payment Bank license)
- Cholamandalam Distribution Services Ltd
- Department of Posts
- Fino PayTech Ltd
- National Securities Depository Ltd
- Reliance Industries Ltd
- Dilip Shantilal Shanghvi
- Vijay Shekhar Sharma
- Tech Mahindra Ltd
- Vodafone m-pesa Ltd
Is this step of RBI making changes in banking practice?
This was the first time in banking history in the year 2015 that the RBI gave licenses to some of the important functions. This move of RBI is believed to be an attempt to promote economic inclusion across the country. However, the payment banks are already in many countries and are very flourishing. Kenya is the best example of it, where 75% of the people are using M-Pesa. In Kenya, 25% of its GDP comes from the income flow M-Pesa.
Hope you understand the meaning of payment bank now.
