Overview of Payment Bank License
In the recent era, the concept of Payment Bank has received both remarkable and reachable hooks in its banking circle business. The term Payment Bank denotes a newly introduced RBI model, which had accelerated transactions, such as a regular bank, except for issuing credit cards and lending. However, to start an online Payment Bank in India, a company or an NBFC needs to acquire Payment Bank License from the RBI.
Further, the main reason due to which the concept of Payment Bank has got much significance is the said model has the capability to give extensions to the Government’s Financial Targets. Also, it shall be noted that the concept of Demonetization had completely recast the Indian Economic System. As a result, people now rely more on digital payment portals and paperless transactions, which has ultimately given a significant boost to the E-wallets or Mobile Wallets that were earlier outcasted.
Laws Governing the Concept of Payment Banks
The concept of a specialised bank model was introduced by the Reserve Bank of India in the year 2013. The same was termed as Payments Bank. It shall be noted that similar to the services offered by other Banks, a Payment Bank provides a range of financial services, except for offering credit cards and facilitating loans.
To open a Payment Bank in India, it is mandatory for the applicant company to obtain a Payment Bank License from the Apex Bank.
Further, based on the provisions of section 22 of the Banking Regulations Act 1949, the Reserve Bank of Bank will issue the Payment Bank License to the applicant company. The said license allows the applicant to carry out banking activities. The term banking activities have the same meaning as specified under the provisions of section 5 (b) and 6 (1) (a) to (o) of the Banking Regulation Act.
Regulatory Structure of Payment Bank License
The regulatory structure of Payment Bank License are as follows:
- Companies Act 2013;
- Banking Regulation Act 1949;
- Deposit Insurance & Credit Guarantee Corporation Act 1961.
- Foreign Exchange Management Act 1999;
- Reserve Bank of India 1934;
- Payment & Settlement System Act 2007;
Objectives of Payment Bank in India
The main objective behind the introduction of Payment Bank in India was to amplify the reach and ambit of the payment facilities to the small businesses and income groups. Further, the Reserve Bank of India, by way of the model of Payment Bank, wanted to increase the penetration of finances into the remote areas. The first-ever Payment Bank that got established in India is the Bharti Airtel.
Further, a comprehensive list of the Payment Banks that are operating in India are as follows:
- Aditya Birla Nuvo;
- Airtel M Commerce Services;
- Cholamandalam Distribution Services;
- India Post Payments Bank;
- Fino Paytech;
- National Securities Depository LTD;
- Reliance Industries;
- Vodafone M-Pesa;
- Tech Mahindra;
- Sun Pharmaceuticals;
Key Benefits of the Payment Bank License in India
The key benefits of the Payment Bank License in India are as follows:
- Zero Account Balance
One of the major benefits of a payment bank is that it is not mandatory and obligatory for the account holder to maintain a certain amount as the minimum required amount. That means one can have zero account balance as well.
- Higher Interest Rate
The cost-saving benefit, due to operational efficiency, is further passed to the customer through higher interest.
Another significant benefit of a Payment Bank is that due to its wide distribution network, the telecom services providers and mobile wallet are able to convert its retail outlets to separate banking points.
- Safe and Secure
Due to 4 factor authentication, the concept of a payment bank is one of the secured models of online transaction introduced by the Reserve Bank of India.
- Account No is same as Mobile No
Normally, this is not that significant feature, but it does increase the level of ease for the holders, who are an especially small business trader, merchants, etc., as there is no need for them to remember any other number as account number for carrying out transactions.
- Cashback and Discount Offers
Similar to any other mobile wallet, a payment bank provides various discount and cashback offers to the holder.
- Additional Benefits
A Payment Bank offers various benefits to its account holders other than the cashback and discount offers.
Payment Bank License
Characteristics of a Payment Bank in India
The basic characteristics of a Payment Bank in India are as follows:
- Offers Deposit up to Rs 1 lakh
A payment bank is eligible to accept deposit up to Rs 1 lakh. All the customers need to comply with the specified limit, and nobody is allowed to exceed the said limit at any point in time. Further, it shall be noted that an individual can opt to deposit an amount, either completely or partially.
The Reserve Bank of India has stated that the limit to protect and safeguard customer’s interest and in regards to the relatively new nature of such banks.
- Facility of Virtual Debit Card
Another peculiar characteristics of the payments bank it that it provides the facility of both physical and virtual debit cards. Further, the debit cards render an edge to the customers to utilise all ATMs (Automated Teller Machines) in both the domestic boundaries and in abroad. The facility of virtual debit cards does not demand any kind of extra charges on the cash withdrawal. Moreover, the physical debit cards are supplemented by an annual fee only.
- Smooth Transactions through Online Portal
Unlike the old and traditional banks, the concept of payment banks streamlines the procedure of making and receiving money through digital platforms. Also, it duly facilitates online fund transfer services, such as NIFT, IMPS and many more to the customers.
- Feasible Way of Making Payment
Irrespective of where one resides or situate, he/ she can easily have the access of services to payment banks, as the same runs digitally. A payment bank eliminates the requirement of visiting a physical bank for the purpose of depositing or withdrawing cash.
Further, it shall be noted that anybody can start his/ her payments bank business online, that, too, without having any physical outlet. The only thing required is the Payment Bank License.
Who are all Qualified to Obtain Payment Bank License in India?
The ones who are qualified to obtain Payment Bank License in India are as follows:
- Individuals or Professionals;
- Mobile Telephone Companies;
- Non-Banking Financial Company (NBFC);
- Real Estate Sector Cooperatives;
- Supermarket Chains;
- Public Sector Entities;
- A Promoter or a Group of Promoters, who owns a Joint Venture, that, too, with an existing Scheduled Commercial Bank;
- Existing Non-bank PPIs (Prepaid Payment Instrument) under the Payment & Settlement Systems Act 2007;
- Corporate Business Correspondence;
- Public Companies;
Capital Requirements for Obtaining Payment Bank License in India
The capital requirements for obtaining Payment Bank License in India are as follows:
- The applicant company must have a minimum paid up equity of Rs 100 crore to start payment in India;
- In India, a payment bank is required to maintain a minimum CAR (Capital Adequacy Ratio) of 15 percent of its total RWA (Risk Weighted Assets). The same is subject to any such higher amount as specified by the RBI from time to time;
- Tier I Capital needs to be at least 7.5 percent of the total Risk Weighted Assets;
- Tier II Capital needs to be limited to a maximum of 100% of the whole Tier I Capital;
- A Payment Bank is not eligible to deal with sophisticated items. That means the Capital Adequacy Ratio (CAR) is identified based on the Basel Committee’s Standardised approaches.
Details to be furnished with Reserve Bank of India
The details to be furnished with the Reserve Bank of India are as follows:
Details for the Individual Partner
The details required from the Individual Partner are as follows:
- Name of the Promoter;
- PAN (Permanent Account Number) No;
- Date of Birth of the Partner;
- Experience of the Individual Promoter;
- Residential Status;
- Parent’s Details;
- Branch Details;
- Current Bank Account Details, along with the Credit Facilities;
- Areas of Expertise;
- Past Track Record of the Business, together with Financial Worth.
Details for the Entity Promoting the Bank
The details required from the Entity Promoting the Bank are as follows:
- Shareholding Pattern of the Entity Promoting the Bank;
- Memorandum of Association (MOA) of the Entity Promoting the Bank;
- Articles of Association (AOA) of the Entity Promoting the Bank;
- Financial Statements for the previous five financial years of the entity promoting the bank;
- Income Tax Returns (ITRs) for the previous three financial years;
Common Details for both Entity Promoting the Bank and Individual Partner
- Names of all the Individual Partners and Entities operating in the Promoter Group;
- Details of the prevailing Shareholding Pattern;
- Pictorial Organogram;
- Details of the Management;
- Total Assets and Liabilities of the Entities;
- Annual Financial Report for the previous Five Years;
- Details of the Listing Shares in the RSE (Recognised Stock Exchanges);
- Permanent Account Number) details;
- Tax Deduction & Collection Account Number;
- Company Identification Number;
- Bank Account Details;
- Bank Branch Details.
Activities Permitted by Obtaining Payment Bank License in India
The activities permitted by obtaining a payment bank license in India are as follows:
- A Payment Bank is eligible to accept deposits up to a prescribed threshold. Further, the term “deposits” comprises of the current deposits made by the small level merchants and saving bank deposits made by an individual;
- NRIs (Non Resident Individuals) are not eligible to make any kind of deposit in the Payment Banks;
- A Payment Bank is eligible to issue ATM or Debit Cards to its customers;
- Payment Banks are not eligible to engage in the Lending Activities;
- A Payments Bank needs to carry out its own Know Your Customer (KYC)/ Anti Money Laundering (AMT), and Combating Financial Terrorism (CFT) exercise like any other similar bank;
- In India, a Payment bank is not eligible to offer Loan & Visa Administrations;
- A Payment Bank can engage in payments & remittance services by way of ATMs (Automated Teller Machines), Business Correspondent, and mobile banking. Further, it shall be noted that remittance and payment services may comprise of acceptance of funds at one end by various channels, such as branches and BCs, and the payments of cash at the other end;
- A Payment Bank must issue Prepaid Payment Instruments (PPIs) in accordance with the instructions given under the provision of the Payment and Settlement Instrument Act 2007;
- A Payment Bank is eligible to provide Internet Banking Services;
- A Payments Bank is eligible to become Business Correspondent of some other bank, based on the guidelines issued by the RBI;
- A Payment Bank can operate as a medium of accepting remittances from scheduled banks under the payment mechanism approved by the RBI, such as RTGS/NEFT/IMPS;
- A Payment Bank is allowed to deal with the Cross Border Remittance Transactions in the nature of personal remittances;
- A Payment Bank is not eligible to establish subsidiaries to carry out the activities and operations of an NBFC;
- Payment Banks is allowed to make payment of the utility bills on behalf of their customers & the general public;
- A Payment Bank is eligible to carry out other non risk sharing simple financial services operations but with the approval of the RBI. Also, it needs to satisfy the requirements of the regulatory sector for such products;
Process of Obtaining Payment Bank License
The steps involved in the process for obtaining Payment Bank License are as follows:
- In the first step, there is a need for the applicant to get a Public Limited Company registered under the provisions of the Companies Act 2013;
- Now, file an application for authorisation to the CGM (Chief General Manager) of the Apex Bank to issue the Payment Bank License;
- In the next step, the EAC (External Advisory Committee) is required to assess the filed application. After that, it need to summon the applicant to authenticate the information given by them;
- RBI will issue the Payment Bank License if the applicant company is able to fulfil all the specified criteria;
- Subsequent to the last step, the name of the said applicant will be displayed on the official website of RBI;
- Lastly, after obtaining the principal approval to work as a payment bank from Apex Bank, the said applicant company needs to establish a bank within a period of 18 months, starting from the date of issuance of the license.
Frequently Asked Questions
Under section 22 of the Banking Regulation Act, 1949, the Reserve Bank of India issues the Payment Bank License to the applicants.
According to the RBI guidelines, the minimum required paid-up equity capital for opening a payment bank and receiving a Payment Bank License is Rs. 100 Cr.
Existing PPI, Professionals/Individuals, NBFCs (Non-Banking Financial Company), Supermarket chains, Corporate Business Correspondents, Companies, Mobile Telephone Companies, Real-Estate sector Co-operatives, and Public Sector units can get the Payment Bank License.
There are many documents and Information that need to be furnished for getting the Payment License Application. To know in detail, kindly refer to the above context for better understanding.
- Detailed Information about the persons/entities,
- A subscriber to 5 % or more of the paid-up equity capital (shareholding arrangement) of the proposed payment bank,
- Show foreign equity participation,
- Details of the sources of capital of the proposed investors and proposed bank
A project report must show the viability of the proposed and bank business potential, the business plan, any other financial services planned to be offered, etc. as per the RBI guidelines, and any other information that is reflected as relevant.
The Foreign Direct Investments policy for private banks must be the guiding policy for foreign shareholding.
Those are:- Reserve Bank of India, 1934; The Companies Act, 2013; Banking Regulation Act, 1949, Foreign Exchange Management Act, 1999, Payment and Settlement System Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961, and Other Statutes and Directives, Prudential Regulations and other Guidelines issued by RBI that may apply from time to time.
No. NRIs are not permitted to make any deposit in the Payment Banks
Yes, a Payments Bank must embark on its own CFT (Combating Financial Terrorism) exercise and KYC (Know Your Customer)/AML (Anti Money Laundering) as any other bank.
Yes. Under the payment system approval by the Reserve Bank of India, a Payment Bank can operate as a channel of accepting 'remittances' from banks, such as RTGS/IMPS/NEFT.
Yes. A Payment Bank needs to agree to take RBI (Reserve Bank of India) Compliances on Web-Banking, Technology Risk Management, Cyber Laws, Data Security, and Electronic Banking.
The payment bank license application shall be addressed to the "Chief General Manager" of the Department of Banking Regulation, RBI.
An EAC (External Advisory Committee), consisting of distinguished professionals like Chartered Accountants, Finance Professionals, Bankers, etc. shall assess the applications. They may call for Information and have deliberations and negotiations with applicants as may be deemed fit by it.
All the applicants for the payments bank's license will be obligatory to furnish their project reports and business plans with their applications. The business plan for the application should address how the bank aims to achieve the purposes of setting up payment banks in India.
Yes. It is advisable that an attorney with "Banking experience" must be appointed to overwhelm many of the potential pitfalls that creep around within the Payment Bank License, and to understand the requirement in detail.
Yes. You should. The payment banks are predictable enough to be a game-changer and transform the current banking system. It will fetch the banking on a broader scale in India and delivers a hugely profitable business.