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Payments Banks Licencing guidelines issued by RBI

The Reserve Bank of India (“RBI”) has issued a new set of guidelines for the set up of a new category of banks to be known as “Payment Banks”, this follows the issue of draft guidelines for this purpose by the RBI in the month of July.

As per the guidelines, a payments bank can be set up with a minimum paid up equity capital of Rs 100 crores, the following entities are eligible to set up such a bank in India :

  • Existing non-bank Pre-paid Payment Instrument (PPI) issuers;
  • Other individuals / professionals;
  • Non-Banking Finance Companies (NBFCs)
  • Corporate Business Correspondents(BCs)
  • Mobile telephone companies
  • Super-market chains
  • Companies
  • Real sector cooperatives owned and controlled by residents
  • Public sector entities

The guidelines specify that the promoters contribution has to be at least 40% of the paid up equity capital for the first 5 years from the date of commencement of business.  Foreign shareholding limits shall be in line with existing FDI policy being 49% by means of automatic route and government route beyond 49% to a maximum of 74%

The RBI has defined a very specific scope for such a payments bank allowing them to hold a maximum balance of Rs 100,000 per individual customer.  Keeping in mind its intended purpose the bank may indulge only in the activities of :

  • Acceptance of demand deposits.
  • Issuance of ATM/debit cards. Payments banks will not be allowed to issue credit cards.
  • Payments and remittance services through various channels.
  • BC of another bank, subject to the Reserve Bank guidelines on BCs.
  • Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc.

Other stipulations imposed by the RBI specify that the bank should be fully networked and technology driven from the beginning, and should possess a high powered customer grievances cell to handle customer complaints.

The RBI has expressly barred such payments banks from undertaking lending activities, further the bank will be mandatorily required to invest a minimum of 75% of its “demand deposit balances” in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. Further the leverage ratio of the bank cannot exceed 3% at any point in time.

[su_box title=”Arkay & Arkay Comment” box_color=”#3cb5ff”]The guidelines are a welcome step in the direction of financial inclusion and making small financial transactions easier for the lay person.

The RBI’s guidelines will also provide a fillip to technology and ecommerce companies such as PayTM and Flipkart as well as telecom operators of all hues which have been trying to enter the payments space. These guideliens also clear the deck for entry of multinationals such as Stripe and Square who have proven their mettle abroad.

In our opinion, the paid up capital ceilings are on the higher side and will prevent smaller but more enterprising companies from entering the space. However Rs 100 crores is still a small price to pay in the context of what these regulations enable.

The emphasis on technology and customer grievances cell is also welcomed for such Payment banks given their focus on the unserved populations.

We expect will contribute significantly to the economy by provide remittance and payments services not just to individuals who were previously either unbanked or were not familiar with traditional banking channels but also leverage technology to provide customer friendly payments solutions and will also provide new payment and settlement options to small businesses. [/su_box]

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