InvestorQ : What was the criteria laid down by the RBI for setting up of a payment bank?
Priyanka Singh made post

What was the criteria laid down by the RBI for setting up of a payment bank?

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1 year ago

The idea of a payment bank was conceptualised by the Reserve Bank of India (RBI) with the aim of furthering the objective of financial inclusion by providing small savings accounts, as well as payment or remittance services to migrant labour workforce, low-income households, small businesses, other unorganised sector entities, etc.

There were 41 applicants that had applied for a payment bank license. However, the RBI only gave in-principle nod to 11 of those applicants. This is because these applicants were examined for their financial track record and governance issues post which the RBI gave in-principle nod to 11 entities to launch their payment banks.

Criteria for setting up a payment bank:

a. Existing non-bank Pre-paid Payment Instrument (PPI) issuers; and other entities such as individuals / professionals; Non-Banking Finance Companies (NBFCs), corporate Business Correspondents (BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks.

b. A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. However, scheduled commercial bank can take equity stake in a payments bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.

c. Promoter/promoter groups should be ‘fit and proper’ with a sound track record of professional experience or running their businesses for at least a period of five years in order to be eligible to promote payments banks.

d. The applicant will have to maintain minimum 75% of deposits in government bonds and maximum 25% deposits with other scheduled commercial banks.

e. The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business.

f. The bank should have a high-powered Customer Grievances Cell to handle customer complaints.

g. The applicant’s bank should be completely technology driven and have a robust network.