The Payments Banks that the Reserve Bank of India plans to licence will accept demand deposits — current and savings bank deposits — but will not undertake lending activities.

However, a Payments Bank can become a Business Correspondent (BC) of another bank for credit and other services which it cannot offer, according to the Reserve Bank of India’s draft guidelines on licensing of differentiated banks.

The primary objective of setting up of Payments Banks is to further financial inclusion.

The banks will provide small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, other unorganised sector entities, and other users. Going by the guidelines, these banks will not provide term deposit facility.

The RBI said preference will be given to those applicants who propose to set up Payments Banks with access points primarily in the under-banked States/ districts in the North-East, East and Central regions of the country.

However, to be effective, the Payments Bank should ensure widespread network of access points particularly in remote areas, either through their own branch network, BCs or through networks provided by others.

Eligible entities

The existing non-banking pre-paid payment instrument (PPI) issuers and other entities such as Non-Banking Finance Companies (NBFCs), corporate Business Correspondents, mobile telephone companies, super-market chains, companies, real sector cooperatives and public sector entities can apply to set up Payments Banks. Banks, too, can take equity stake in a Payments Bank to the extent permitted under the Banking Regulation Act, 1949.

Payments Banks will initially be restricted to holding a maximum balance of ₹1 lakh/customer. After the performance of the Payments Bank is gauged by the RBI, the maximum balance can be raised. The minimum paid-up voting equity capital of the Payments Bank shall be ₹100 crore. Any additional voting equity capital to be brought in will depend on the business plan of the promoters. Further, the Payments Bank should have a net worth of ₹100 crore at all times.

The Payments Bank will be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be prescribed by the RBI from time to time.

However, as Payments Banks are not expected to deal with sophisticated products, the capital adequacy ratio will be computed under simplified Basel I standards.

The promoter’s minimum initial contribution to the paid-up voting equity capital of Payments Bank will be at least 40 per cent which will be locked in for a period of five years from the date of commencement of business of the bank.

Shareholding by promoters in the bank in excess of 40 per cent should be brought down to 40 per cent within three years from the date of commencement of business of the bank.

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