Payment Bank License

What are payment Bank?

Payment Bank are conceptualized by the Reserve Bank of India (RBI). The maximum deposits restricted to these types of Bank currently is INR 1 lakh per customer which shall be increased further. Both the current as well as savings account can be operated under such Bank. They can issue service relating to debit cards, online banking mobile banking and also ATM cards. Payment Bank also known as differentiated Bank shall be permitted to set up outlets (branches), ATMs, business correspondents, etc. but would be restricted to activities permitted to Bank under the Banking Regulation Act, 1949. Minimum paid up capital of payment bank shall be 100 crores.

Acts governed under payment Bank

  • Companies Act, 2013.
  • Banking Regulation Act, 1949.
  • Reserve Bank of India Act, 1934.
  • Foreign Exchange Management Act, 1999.
  • Payment and settlement systems Act, 2007.
  • Deposit Insurance and credit Guarantee corporation Act, 1961.
  • Other applicable rules and regulations that may come from time to time.

The primary objective of payment Bank are to provide:

Small savings accounts

payment/remittance services to labour workforce, low income households, unorganized sectors, small businesses, high volume low value transactions etc.

Eligible players

  • Existing non-bank prepaid payment instrument under the Payment and settlement systems Act, 2007.(They can opt for conversion to payment bank).
  • Individuals/professionals.
  • NBFC’s (non-banking finance companies).
  • Business correspondents.
  • Mobile telephone companies.
  • Supermarket chains.
  • Companies (public companies).
  • Real sector cooperatives.
  • Public sector entities.

The highlighting of payment Bank as follows

  • Current deposits, saving bank deposits from individuals, small businesses are permitted up to a certain limit as prescribed.
  • NRI deposits are not allowed/accepted.
  • Issuance of ATM/Debit cards (although no credit cards).
  • Internet banking services are open under payment bank. These Bank are expected to offer low cost banking solutions. (compliance of RBI instructions on internet banking, information security, electronic banking, technology risk management, cyber laws is necessary).
  • payment bank can accept remittances as a channel (just like RTGS/NEFT/IMPS).
  • payment Bank cannot take lending activities.
Procedure for payment Bank License
. Step

Incorporation of a public Limited Company, in accordance with the Companies Act, 2013, RBI regulations, with the main objectives of acting as a payment bank.

2. Step

Filing of application to Chief General Manager of The Reserve Bank of India.

3. Step

The EAC (External Advisory Committee) shall evaluate the application, and call for information’s and discussions with the applicant.

4. Step

RBI license shall be granted who fulfills all the eligibility criteria’s.

5. Step

Name of applicants for bank license shall be shown in the official RBI site.

6. Step

In principle approval to operate as a bank, shall be taken up by The Reserve Bank of India. The bank needs to be set up within the time period of 18 months.

Small Finance Bank License

How to apply for Small Finance Bank License?

Small finance bank shall be registered as a public limited company under the Companies Act, 2013 and will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934 and with other relevant Statutes and the Directives/Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time.

Reserve Bank of India wants to serve rural & semi-urban areas such as small businesses, unorganized sector, low-income households, farmers and migrant workforce through Small Finance Banks.

Small finance banks are a type of niche banks. These type of banks carrying small finance bank license provides basic banking services related to acceptance of deposits and lending. Their main aim is to provide financial services to those sections of the economy which are not being served by the other banks, such as small business units, small and marginal farmers, micro and small industries and entities of the unorganized sector.

Small Finance Banks make money by collecting money from current account & saving account depositors, fixed depositors, commercial papers, Wholesale deposits, refinancing etc. On saving account they offer interest rates between 6 to 7 % subject to conditions. On fixed deposit around 9%, interest is offered. SFBs offers two types of products such as group loans & individual loans. These products can be further divided into agricultural, education, home improvement, home purchase, livestock loans etc.

SFBs do not get a guarantee against the loan offered. In the group loans, they are offered on the joint liability. In case any member of the group does not pay than the whole group is held liable for the same.

Small Finance Banks require prior approval for the opening of bank branches from RBI. Universal banks do not require such permission for roll out a branch in the unbanked rural areas.

Small Finance Banks required to extend 75% of their Adjusted Net Bank Credit (ANBC) to the classified sectors under priority sector lending (PSL) by the RBI. Agriculture, Small scale industries, Small business/ service enterprise, Microcredit, Education loans.

What is OBJECTIVE of Small finance bank?
  • Its primary purpose is to provide an institutional mechanism for promoting rural & semi-urban savings and also providing credit for viable economic activities in local areas and provision of savings vehicles primarily to unsaved and underserved sections of the population, and
  • Supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganized sector entities, through high technology-low cost operations.
What are RULES & REGULATIONS for Small finance banks?
  • Small finance bank will undertake basic banking services of acceptance of deposits and lending to unsaved and underserved sections.
  • It will provide banking facilities to boost saving habits.
  •  It will mainly target small business units, marginal farmers and unorganized sector entities through high technology-low cost operations.
  • They are established as a public limited company in the private sector which is promoted either by individuals, corporate, trust or societies.
  • They are governed by the provisions of Reserve Bank of India act 1934, Banking Regulation act 1949 and other relevant statutes.
  • Small finance banks are considered as non-scheduled banks and they are not allowed to borrow funds from the Reserve Bank of India like other scheduled banks.

RBI has clarified that SFBs can convert themselves into universal banks through the transition would not be automatic and it will require regulator’s approval.

What is minimum capital adequacy requirement for Small finance bank License?

Particulars

%

Minimum Capital Requirement15%
Common Equity Tier 16%
Additional Tier I1.5%
Minimum Tier I capital7.5%
Capital Conservation BufferNot Applicable
Pre-specified Trigger for conversion of AT1CET1 at 6% up to March 31, 2019, and 7% thereafter
Key CHALLENGES faced by Small finance bank?

It is not easy to maintain ideal technology platform which should benefit both the customers for ease of transactions and to the bank as a reduction in cost. Previously functioning as MFIs (Microfinance institutions), Small financial Banks have not handled deposits before. It is required for them to invest in the infrastructure which enables deposits through establishing a physical branch network to mobilize correspondent network, ATM network, and partnering with banks. Capital adequacy ratio, cash reserve ratio (CRR) and statutory liquidity ratio (SLR) will be a significant burden to manage which will result into reduced earnings until SFBs develop a substantial depositor base.


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