Payment banks will be ‘neighbourhood banks’ like neighbourhood kirana stores and will lead to greater financial inclusion
Payment banks will soon be a reality with the Reserve Bank of India (RBI) granting “in-principle” approval to 11 applicants to set up payments bank, which includes big players like Aditya Birla Nuvo Limited, Airtel M Commerce Services Limited and department of posts (DoP). Guidelines for Licensing of Payments Banks were issued on November 27, 2014.
Financial inclusion was the main idea behind the pradhan mantri jan-dhan yojana (PMJDY) launched in August last year. With more than 12 crore accounts and with almost 100 percent household coverage, PMJDY has made a major headway in eradicating financial untouchability. Now with license for payments banks given to 11 entities, financial inclusion might get a major fillip in the coming months.
READ: Payments banks to ensure ease of money transfer
Payment banks will be ‘neighbourhood banks’ like neighbourhood kirana stores and will lead to greater financial inclusion.
According to RBI, the “in-principle” approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the Guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank.
“On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of “in-principle” approval, the Reserve Bank would consider granting to them a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949. Until a regular licence is issued, the applicants cannot undertake any banking business”, RBI stated in a press note on Wednesday
A detailed scrutiny was undertaken by an external advisory committee (EAC) under the Chairmanship of Dr Nachiket Mor, director, Central Board of the Reserve Bank of India. The recommendations of the EAC were an input to an internal screening committee (ISC), consisting of the governor and the four deputy governors. This ISC prepared a final list of recommendations for the committee of the Central Board (CCB), after independently scrutinising all the applications. At its meeting on August 19, 2015, the CCB went through the applications, informed by the recommendations of the EAC and the ISC, and approved the announced list of applicants.
According to the RBI, in arriving at the final list, the CCB noted that it would be difficult at this stage to forecast the most successful likely model in the emerging business of payments. The CCB further noted that payments banks cannot undertake lending, and therefore believed that the payments bank would not be subject to the same risks as a full service bank.
In August 2013, in a policy discussion paper ‘Banking Structure in India – The Way Forward’, the RBI discussed the “need for niche banking in India”, and held that “differentiated licensing could be a desirable step in this direction, particularly for infrastructure financing, wholesale banking and retail banking.”
Subsequently, the committee on comprehensive financial services for small businesses and low income households, in its report released in January 2014, examined the issues relevant to ubiquitous payment network and universal access to savings and recommended the licensing of payment banks to offer financial services to the hitherto excluded segments of the population.
In the union budget 2014-2015, the finance minister announced: “After making suitable changes to current framework, a structure will be put in place for continuous authorisation of universal banks in the private sector in the current financial year. RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force”.
Draft guidelines for licensing of payments banks were released for public comments on July 17, 2014. Based on the comments and suggestions received on the draft guidelines, final guidelines for licensing of payments banks were issued on November 27, 2014. The Reserve Bank also issued clarifications to the queries (numbering 144) on the guidelines on January 1, 2015. The Reserve Bank received 41 applications for payments banks.
Applicants who have got the license
- Aditya Birla Nuvo Limited
- Airtel M Commerce Services Limited
- Cholamandalam Distribution Services Limited
- National Securities Depository Limited
- Reliance Industries Limited
- Shri Dilip Shantilal Shanghvi
- Shri Vijay Shekhar Sharma
