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Payment Banking In India Research Team | Posted On Friday, January 25,2019, 12:18 PM

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Payment Banking In India



What are payment banks?

Payments banks are a new model of banks, licensed by the Reserve Bank of India (RBI). These banks can accept restricted deposits of up to Rs 1,00,000 per customer. RBI has not authorized these banks to issue loans or credit cards. However, payment banks can offer ATM cards, debit cards, net-banking and mobile-banking facilities.

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Payments Banking In India

History of Payment Banks

The history of Payments banking in India dates back to 2013.
RBI framed a committee headed by Nachiket Mor for Comprehensive Financial Services for Small Businesses and Low Income Households in September 2013. 

In January 2014, the committee submitted its final report, in which it recommended the formation of a new kind of bank called payments bank. In July 2014, the RBI released the draft guidelines for payment banks, seeking feedback and committees for interested entities and the general public. In November 2014, RBI published the final guidelines for payment banks.

In February 2015, RBI published the list of bodies that had applied for a payments bank authorization. There were 41 applications. RBI further announced that an external advisory committee (EAC), which was also headed by Nachiket Mor would be evaluating the applications received. In February 2015, it was announced in the budget session that India Post will use its wide network to run payments bank. The EAC submitted its report on the applications received in July 2015.

The applicants were scrutinized for their financial track record and administrative issues. In August 2015, the RBI gave ‘in-principle’ license to 11 of the 41 applicants to launch payments bank. The ‘in-principle’ license was valid only for 18 months within which the entities had to fulfill all the requirements and they were not allowed to engage in banking activities within the period. The RBI would then grant full licenses under Section 22 of the Banking Regulation Act, 1949, after the entities fulfilled all the requirements.

Bharti Airtel launched India's first payments bank by the name ‘Airtel Payments bank’ in March 2017. Paytm Payments Bank, India Post Payments Bank , Fino Payments Bank and Aditya Birla Payments Bank  are the other payments banks. Cholamandalam Distribution Services, Sun Pharmaceuticals and Tech Mahindra have surrendered their licenses.

Following are the authorized entities for payments banking in India:

·     Aditya Birla Nuvo Limited

·     Airtel M Commerce Services Limited

·     Cholamandalam Distribution Services Limited

·     India Department of Posts

·     Fino PayTech Limited

·     National Securities Depository Limited

·     Reliance Industries Limited

·     Shri Dilip Shantilal Shanghvi

·     Shri Vijay Shekhar Sharma

·     Tech Mahindra Limited

·     Vodafone m-pesa Limited

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List of Payment Banks in India that are currently active

List of Payment Banks in India

  •     Airtel Payments Bank
  •   Aditya Birla Payments Bank
  •      India Post Payments Bank
  •      Fino Payments Bank
  •      Jio Payments Bank
  •      Paytm Payments Bank

Objectives of payment banks

The main objective of a payments bank is to increase financial inclusion by offering small saving accounts and payment remittance services to low-income households, migrant labour workforce, small businesses and other unorganized sectors and other similar users. It will also enable high volume and low value transactions in deposits and payment/remittance services in a technology-driven environment.

Do’s and don’ts of a payments bank are given below:



Accept deposits from individuals, small business or other similar entities.

Offer loans

Accept cash deposits of up to Rs 1 Lakh

Offer credit cards

Set up branches and ATMs

Accept deposits  from NRIs

Debit cards and internet banking

Set up subsidiaries of non-banking financial purposes

Sell financial products like mutual funds, insurance and pension products

Offer financial/non-financial services of promoters

Accept remittances to be sent to multiple banks and receive remittances from them.


Utility bill payments


Payments Banking Regulations in India

Below mentioned are the payments banking regulations set by RBI:

  • Minimum capital of Rs 100 Crore.
  • Promoter contribution of at least 40% for the first 5 years.
  • Stake holding can be brought down to 40% at the end of five years, to 30% at the end of ten years, and to 26% at the end 12 years of commencement of payment bank.
  • Foreign shareholding is subject to following FDI rules, similar to the private banks in India.
  • Any acquisition of more than 5% needs approval from RBI.
  • The board of directors should be independent directors, who will be appointed as per the RBI guidelines. It must comply with the ‘fit and proper’ criteria for Directors as directed by the RBI.
  • The payment bank must have wide network and driven technology, right from commencement.
  • At least 25% of its branches must be in the unbanked rural areas.
  • The entity name must have ‘payments bank’ so as to differentiate it from other types of banks.
  • These banks would be registered as public limited company under the Companies Act, 2013.
  • The RBI has mandated all payments banks to have ‘Customer Grievance Cell’ to handle customer complaints and concerns.

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Advantages of Payments Banks:

  • Zero Balance Account

There is no minimum balance to be maintained. This facilitates individuals earning low income.

  • Higher Interest Rate

The interest rate offered by a payments bank is 7.25% which is much higher than what a normal savings bank offers. India Post Payments Bank offers 5.5% and Airtel Payments Bank offers 7.25%.

  • Convenience

Payments banks have wide network, which makes it convenient for the customers to avail facilities.

  • Safe and Secure

These banks are driven with highly safe technology.

  • Account Number is same as Mobile Number

The account number is the same as mobile number, which makes it is easy to remember.

It provides cashback similar to mobile wallets.

  • Cashback, discounts and other Benefits:

Certain merchants offer cashback, discounts and other benefits on making payments through these banks.

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Regular Banks vs Payment Banks

Difference point

Regular Banks

Payments Banks


Regular banks are authorized to lend

Payments banks are not authorized to lend


Can take deposits worth Crores

Payments banks can accept up to  Rs 1,00,000


Commercial banks are allowed to invest the money in deposits like open market – shares, equities, debt instruments and so on

Can invest only in government bonds. If they don’t want to invest, they can give the money to commercial banks for investing.

Minimum balance

Few banks have minimum balance to be maintained, failing which will attract penalties.

There is no minimum balance to be maintained.

Credit card

Commercial banks are authorized to issue credit cards.

Payments banks are not authorized to issue credit cards.

Service catering

Regular banks have very limited number of branches in rural areas.

Payments banks are established mainly to attract customers in semi urban and rural areas.


Regular banks have not yet adopted high end technology in their services.

Payments banks have adopted a very high end technology and are mainly technology driven.


Regular banks offer forex services. Banks make a lot of profit out of forex services.

Even payments banks offer forex services however, they charge less than commercial banks on forex services.

Capital requirement

Commercial banks have very high capital. The balance sheets are also extremely enormous.

Payments banks on the other hand need only INR 100 Crores as capital.

Financial products

Banks are allowed to offer a lot of financial products like insurance, mutual funds and so on.

Payments banks have also bagged approval from RBI to distribute such financial products. However, unlike commercial banks which can actually create and distribute products, Payments banks can only distribute products but cannot create them.

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