PAYMENT BANK: A GAME CHANGER IN INDIAN BANKING SYSTEM
Sudindra V R
To achieve the financial inclusion target, Reserve Bank of India gave in-principle approval to eleven entities to open a new category of banks, ‘payment banks’. Unlike conventional banks, Payment
bank is a non-full service niche bank which can only receive deposit and provide remittances. Payment banks will not be in the business of lending. These banks are targeted towards financially excluded customers like migrant laborers, low income households, small businesses and other unorganized sector entities. Eleven entities includes: Adithya Birla Nuvo, Reliance industries, Airtel M Commerce services, Vodafone M Pesa, the National security depository, PayTM CEO Vijay Shekar Sharma, Tech Mahindra, Sun Pharma’s Dilip Shanghvi, FINO Paytech, Cholamandalam distribution services and department of Posts.
EXTENDED BANKING SYSTEM:
The newly licensed payment banks will join India’s vast banking system, once they fulfill criteria laid down by Reserve bank of India in 18 months. Payment bank will extend and operate with conventional players in the banking sector of India which includes commercial banks, schedule and non-scheduled banks, cooperative banks and regional rural banks.
MILESTONES:
In September, 2013, Mor Committee was set up to fill the gap in financing to small businesses and low income households headed by Nachiket Mor. On 7th January 2014, Mor committee submitted final report recommending the formation of new category of bank. On 17th July 2014, the RBI released the draft guidelines for payment guidelines to get the feedback from public and entities. On 27th November 2014, the RBI released the final guidelines. On February 2015, the RBI released the list of entities which had applied for license. On 19th August 2015, RBI had given “in-principle” licenses to eleven entities to launch payment banks.
CHANGE OF BANKING GAME:
Payment banks are safest banks in the new banking system, as these banks are lending only to government and government doesn’t default. Once the existing approved payment banks starts its operation, more than 50 to 100 other players will be entering into the arena of new banking system. Private players with Rs. 100 crores of initial capital can set up the payment bank, subject to assessment of Reserve bank of India’s “fit and proper” norms. These banks will revolutionize the money movement and will change the banking game by bridging the gap between bank branches and remote customers living in rural areas with the help of virtual ATM and through mobile banking. Payment banks act as the key enablers for development of banking habits among undeserved population.
REDUCED COST OF TRANSACTION:
Due to intensive competition, in future the cost of banking will drastically reduce, which can be driven by various factors: zero balance account, higher interest rate on savings bank account, low cost services and easy accessibility. The days are gone, where public sector banks are safest banking system, due to high non-performing assets they are heading towards bankruptcy.
TRANSFORMATION OF SOCIAL WELFARE SCHEMES:
The payment banks will transform social welfare and subsidy schemes – whether for LPG, kerosene or even food and fertilizer – can now be routed through regular and payment banks. India Post is already there in places where banks aren’t there (with over 1.5 lakh post offices), and other players will reach customers through mobile-enabled payment systems. Through Aadhaar IDs and mobile banking will enable direct payments to the poor, eliminating fake recipients, ensuring cash i
n zero-balance accounts.
n zero-balance accounts.
CASHLESS BANKING AND LOWER RATES FOR GOVERNMENT:
Expansion of ATMs will be reduced with the advent of mobile technology which enable users to enjoy cashless banking. Payment banks enable the government to borrow at the cheaper rates, as these banks are investing their money in government bills up to one year maturity which brings interest rates lower.
FACILITATES GROWTH:
Improved access to baking will provide windows for household savings in formal financial instruments and thereby see a decline in myriad forms of suspect savings and investment schemes run by unregulated entities and individuals which facilitates growth in savings and growth in economy.
CONCLUSION:
Payment banks are targeted towards financially excluded customers like migrant laborers, low income households, small businesses and other unorganized sector entities and will change the Indian banking structure. These banks will change the banking game and competitions in future by using mobile technology, reduction in cost of technology, transformation in social welfare schemes, cashless banking and lower rates for government which facilitate growth of economy. All said and done, these set of newly in-principle approved payment banks do face the uncertainties of customer reception, working of profit model and challenges of interest rate volatility in their investments into government securities. While it is appreciated that these banks offer a plethora of benefits to the Indian socio-economy, is the business model sustainable remains to be a question that only future can answer.
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