Payments Bank License in India

A Payments Bank is a relatively new form of bank compared to a Traditional Bank. It has the functions of any other bank, but it operates on a smaller scale, i.e., it doesn’t provide loans and cannot issue credit cards. Payments Banks are generally used for online transactions. Since the demonetization in November 2016, many people have started making transactions through payment banks for cashless transactions, especially in urban areas. Airtel Payments Bank, the very first Payments Bank in India, came within a few months after demonetization. Currently, there are 6 Payments Banks in India, namely, Airtel Payments Bank, India Post Payments Bank, Fino, Paytm Payments Bank, NSDL Payments Bank and Jio Payments Bank. In 2020, India reached a record 25.5 billion real-time digital payment transactions, the highest ever reported in the world. This shows the success of cashless transactions in the country during the time of the Covid-19 pandemic.

What is Payments Bank License?

A company needs to acquire a Payments Bank License to operate as a Payments Bank. Payments Banks are authorized by the Reserve Bank of India (RBI). At present, these banks are permitted to accept a deposit which is currently restricted to ₹200,000 per customer and may be increased further. Both savings and current accounts can be operated under Payments Banks. The banks are licensed as Payments Banks under Section 22 of the Banking Regulation Act, 1949, and are registered as Public Limited Companies under the Companies Act, 2013. These banks can provide services that link to bank cards, Net Banking, and ATM cards. However, they’re limited to the activities authorized by the Bank under the Banking Regulation Act, 1949. These payments banks are licensed and certified by the government.

Features of Payments Banks

Here are some of the features of Payments Banks:

• These banks are different from the usual universal banks. This is why they are called differentiated banks. The universal banks like SBI, Kotak Mahindra Bank, HDFC Bank, etc. are permitted by the RBI to provide almost all products and services of a typical bank. On the other hand, the differentiated banks are only permitted to provide selected products like credit, payments, deposit etc., with RBI regulations.
• Payments Banks operate on a smaller scale.
• These banks are required to have a minimum paid-up capital of Rs. 100,00,00,000.
• The promoter’s minimum initial contribution to the paid-up equity capital of the Payments Bank should be at least 40 % for the initial 5 years from the commencement of its business.

Activities That Can Be Performed By Payments Banks

• Deposits up to Rs. 2,00,000 can be taken by Payments Bank.
• These banks can accept demand deposits in the form of savings and current accounts. 75% of the money received as deposits shall be invested in government securities in the form of Statutory Liquidity Ratio (SLR). The remaining 25%  shall be placed as time deposits with other scheduled commercial banks.
• Payments banks are allowed to make personal payments and receive cross border remittances on the current accounts.
• These banks can issue their debit cards to the customers.

Activities That Cannot Be Undertaken By Payments Banks

• Since the Payments Banks receive a ‘differentiated’ bank license by RBI, they cannot provide loan facilities.
• These banks are not allowed to issue credit cards.
• Time deposits or NRI deposits cannot be accepted by these banks.
• They cannot provide insurance policies, pensions or offer mutual funds.

Qualified Players for the Payments Bank License

In order to be eligible for Payments Bank License, a minimum paid-up capital of 100 crores is required. Mentioned below are all the players who are qualified for this license as per RBI:

• Current non-bank Prepaid Payment Instrument (PPI) issuers approved under the 2007 Act on Payment and Settlement Systems.
• NBFCs ( Non-Banking Finance Companies)
• Professionals or Individuals
• Corporate Business Correspondents (BCs)
• Supermarket Chains
• Public Sector Entities
• Real Sector Cooperatives owned by residents
• Mobile Telephone Companies
• Companies (Public companies)
• A promoter/group of promoters may be eligible for a Payments Bank License if they have a joint venture with an existing scheduled commercial bank .

Laws that Govern Payments Bank

The Payments Bank must be registered under these acts:

• Companies Act, 2013;
• Reserve Bank of India Act, 1934;
• Banking Regulation Act, 1949
• Payment and Settlement Systems Act, 2007
• Foreign Exchange Management Act, 1999
• DICGC Act, 1961 (Deposit Insurance and Credit Guarantee Corporation)

Procedure of Payments Bank License

If you are interested in setting up a Payments Bank, you should know the following steps to acquire a Payments Bank License:

Step 1: Before applying for the License, you need to get your company registered as a Public Limited Company under the Companies Act, 2017. The company‘s primary goal should be to serve as a Payments Bank.

Step 2: The second step involves filing an application to the Chief General Manager for the issuance of Payments Bank License.

Step 3: Once the The External Advisory Committee (EAC) reviews your application, they will ask you to verify the details submitted.

Step 4: If everything goes right, the RBI will issue you a Payments Bank License. Your name will also be displayed on the official portal of RBI.

Step 5: After receiving the license, the Payments Bank must be established within 18 months.

Conclusion

The concept of Payments Bank is relatively newer compared to the Traditional Banks. Since the demonetization in 2016, Payments Banks have been running successfully. Since there are only limited players in this industry, it is certainly a great idea to open up a Payments Bank. If you find the process of applying for the Payments Bank License a bit complicated, our Payments Banks License Consultants will be more than happy to help you! 

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.