The Indian financial and banking sector is all set to undergo a big change in the near future as the Reserve Bank of India is finalizing norms and regulations to introduce small and payment banks in the country. In an attempt to make sure that all sections of society and people living in remote rural areas have access to banking facilities, the Reserve bank of India worked on the proposal to introduce small and payment banks.
The move by the Reserve Bank to issue guidelines for small and payment banks comes weeks after the unprecedented success of the Pradhan Mantri Jan Dhan Yojana opening 5.52 crore new bank accounts till the first week of October bringing about a deposit of Rs 4,268 crore to the stat exchequer. The idea behind small and payment banks was first announced by finance minster Mr. Arun Jaitley in his maiden budget speech. Payment banks once initiated are likely to increase the number of people into the banking system, focusing on fulfilling the financial vacuum especially for small business owners, people from low income groups including migrant workers and laborers.
Let us see its possible impact in the Indian banking system
The Concept of Payment Banks: Payment bank would be focused on having a widespread network with easy access points in rural areas and hinterland of the country. It will offer all core banking services including cash remittances and demand deposits for its customers. Consumers would be free to open both savings bank account and current bank accounts with Payment Banks. For any other banking transactions, one would have to approach a bigger nationalized, public, private or a co-operative bank as payment banks would have limited core banking operations.
One of the basic tasks accomplished by payment banks would be to ‘offer payment services to migrant workers and low-income households. Workers living in cities and away from their rural homes would be able to send money directly to payment banks located in their village accessible by their immediate family members almost instantly.
The Reserve Bank of India (RBI) has set a minimum paid-up capital of Rs.100 crore as an initial investment fee for payments banks. Anyone from a mobile phone service provider to a non banking financial company or even a supermarket retail chain can apply for a payment bank’s license if they fulfill the minimum eligibility criteria. RBI is working on specific guidelines for payment banks that would make it mandatory for them to meet cash reserve requirements and needs to invest in specific securities to meet the statutory liquidity ratio. Promoter’s holding in payment banks must be at least 40 % for the first five years which can then be gradually reduced to 26 % over 12 years if so desired by the promoter.
Impact of Payment Banks on the Banking Sector:
For all accounts held by the payment banks, the banks would be stipulated to pay an annual interest to the account holder. While the Reserve Bank of India is yet to define the quantum of interest rates payable by payment banks to their customers, an interest rate of 4% similar to the one offered by public sector banks is likely. The one big difference between payment banks and ordinary banks would be the fact that payment banks would not be eligible to offer any loans to its customers. To avail any kind of a retail loan, the consumer will have to approach a full-fledged bank instead.
With increasing competition in the core banking services especially in semi urban and rural sectors, traditional banks have to keep them abreast with superior customer service and constant innovation in introducing new schemes. With this increasing competition among banks and banking services, customers are likely to benefit with quality, promptness and convenient financial services.
As the government is working towards a direct repayment of subsidy on various schemes to the bank account of consumers, poor sections of society who not having a bank account would gain with the introduction of payment banks. Since most of laborers working away from home use post offices or third-party channels to initiate a funds transfer to their native places, payments banks once approved and introduced in the near future will change the face of rural India.
