India’s New “Payment Banks” Expected to Spur Innovation

Monday, December 1, 2014

The Reserve Bank of India (RBI) on Thursday released the final guidelines for licensing of payments and small banks. These banks are intended to cover the unbanked and underbanked areas and increase banking penetration in the country, stated the circular. Let’s take a look at the changes that these banks are likely to bring in financial services.

According to the guidelines, payments banks can open small savings accounts and accept deposits of up to Rs.1 lakh per individual customer, and provide remittance services. These banks are allowed to issue automated teller machines (ATM) or debit cards but are not allowed to issue credit cards or lend in any form. Payments banks can also distribute “non-risk sharing simple financial products like mutual fund units and insurance products”, stated the circular.

Small finance banks, on the other hand, will be allowed to take deposits as well as lend money, the way other commercial banks do, but the focus will be on small lending. They can finance small business units, small and marginal farmers, micro and small industries and unorganized sector entities. These no longer face geographical restrictions on operations.

Companies that are already present in the payments or finance space—such as prepaid payment issuers and non-banking finance companies (NBFC)—are considering applying for the new licences. For instance, ItzCash Card Ltd, FINO PayTech Ltd, Oxigen Services India Pvt. Ltd and Citrus Payment Solutions Pvt. Ltd are planning to apply for payments bank license.

Source: Live Mint (link opens in a new window)

lending, microfinance