About Payments Banks 

• Payments banks are the new age banks with limited facilities. These banks mostly operate through the small vendors and shopkeepers. It exists in between the mobile wallet and regular banks.
• Payments banks are permitted to set up their own outlets such as branches, Automated Teller Machines (ATMs), Business Correspondents (BCs), etc. to undertake only certain restricted activities permitted to banks under the Banking Regulation Act, 1949.
• A payments bank provides following services to its customers:

• Accept demand deposits (restricted upto Rs.2 lakhs)
• Remittance services
• Mobile payments
• Fund transfers
• Debit card and associated services (Payments banks, however, cannot issue credit cards)
• Net Banking services
• Sell third-party financial products like insurance and mutual funds
• However, payments banks cannot undertake the following activities:
  • They cannot undertake lending activities 
  • They cannot set up subsidiaries to undertake non-banking financial services activities
  • They are not eligible to accept NRI deposits.

Objectives

• The main objective of payments banks is to widen the spread of payment and financial services to small business, low-income households, and the migrant labour workforce in a secured technology-driven environment.
• With payments banks, RBI seeks to increase the penetration level of financial services to the remote areas of the country. 
• The Reserve Bank expects payments banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.

Eligible promoters

• Existing non-bank Pre-paid Payment Instrument (PPI) issuers authorised under the Payment and Settlement Systems Act, 2007. 
• Other entities such as individuals / professionals; Non-Banking Finance Companies (NBFCs), corporate Business Correspondents (BCs), mobile telephone companies, supermarket chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks.

Regulations 

• Payments banks are registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949.
• Deposits mobilised by the payments bank are covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). 
• Apart from amounts maintained as Cash Reserve Ratio (CRR) with RBI on its outside demand and time liabilities, Payments banks are required to invest minimum 75 per cent of its “demand deposit balances” in Government securities/Treasury Bills with maturity up to one year for maintenance of Statutory Liquidity Ratio (SLR) and hold maximum 25 per cent in current and time / fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. 
• The minimum paid-up equity capital of the payments bank shall be Rs. 100 crore. The payments bank shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis.
• The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time. As per the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed upto a maximum of 74 per cent of the paid-up capital of the bank.

Why in News?

• India Post Payments Bank (IPPB) has attained a significant milestone with eight crore customers now benefiting from its innovative and inclusive financial services.
• IPPB has been established under the Department of Posts, Ministry of Communication with 100% equity owned by the Government of India. 
• The fundamental mandate of India Post Payments Bank is to remove barriers for the unbanked & underbanked and reach the last mile leveraging the Postal network comprising 155,000 Post Offices (135,000 in rural areas) and 300,000 Postal employees.