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[ Payment Banks vs Commercial/Retail Banks ]

By The Summarizers
On Nov 27, 2014, the RBI (Reserve Bank of India) has issued "Guidelines for licensing of Payment Banks in India" & seeks application from the eligible applicants for setting up of Payment Banks.

On Feb 04, 2015, RBI releases name of 113 applicants & out of which 41 was for Payment Banks, remaining for small finance banks.

And out of 41, only 11 were selected by RBI. They are :-

Aditya Birla Nuvo, Airtel M Commerce services, Cholamandalam Distribution Services, Department of Post, FINO Pay Tech, NSDL, Reliance Industries Ltd, Sun Pharma, Paytm, Tech mahindra & Vodafone (m-pesa).

Cholamandalam Distribution Services, Sun Pharma, Tech mahindra have surrendered their licenses i.e, they are not operating now.



Lets move to check what do you mean by a 'Payment Banks' & some other things to break the ice :-

⊶ What are Payment Banks ?
  • It is a new business model of Bank framed by RBI.
  • It has same features as of the normal banks (except limits placed on it, discussed in the mid of this post).
⊶ What are their features ?
  • They accept only Deposits .
  • But they do not lend money, hence there will be no credit risk (risk of default).
  • It uses Smartphones as a platform.
  • Obviously, they will provide you the interest on your deposits, Debit cards  & ATM facilities.
  • Money can be moved digitally anywhere with the help of these banking apps.
  • No doubt, the information is encrypted which reduces any hacks or failures.
⊶ Who will be benefitted by Payment Banks ?
  • Migrant Labours (who shifts from one place to another).
  • Low income households (they can maintain the bank balance at Rs.0).
  • Customers will not bear any minimum balance penalty & other transaction costs.
⊶ Aim of Payment Banks & RBI !
  • Financial Inclusion (everyone to be part of this system).
  • Cashless Economy (Digitalisation).
  • To make Rural areas more digitally-abled.
  • End-to-end electronic transfer of funds.
  • To reduce NPA from bank balance sheets (Must Check).
⊶ What are the limits placed on Payment Banks ?
  • They cannot issue Credit cards.
  • Max Rs.1 lakh per person (resident only) can be accepted as deposits.
  • They are not eligible for Lending activities.
⊶ How these banks earn income ?
  • Generally, commercial/Retail banks earn their income by lending money to borrowers, which is a limit in Payment Banks.
  • So for this, RBI makes a Earning Model (as shown in pic)
75% of the money is invested into government securities to meet the SLR requirements & remaining money gone into commercial bank as a cash in hand.

⊶ How to Open an account in these banks ?
  • The account opening process is very simple & less time taking.
  • Just download the app of whatever Payment Bank you like.
  • They only demand your 'Aadhar Card' number & 'Thumb impression' for verification.
The Last Lines :~

The main difference lies between commercial / retail & payment banks are in terms of -- taking limited deposits, no lending capacity, work on a small scale & doesn't attract corporates. Saving Bank interest varies bank to bank. Airtel Bank providing 7.25% , whereas Paytm is providing around 4% only.






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