August 20, 2015

RBI gives in principle approval for payment banks

The Reserve Bank of India (RBI) gave approval in principle for 11 entities on Wednesday to set up payments banks.

They are India Post, Reliance Industries Ltd., Aditya Birla Nuvo, Tech Mahindra, Sun Pharma, National Securities Depository Ltd., Airtel M Commerce Services Ltd., Vodafone m-pesa Ltd., Cholamandalam Distribution Services Ltd., Fino PayTech Ltd. and Paytm.

Payments banks will accept deposits upto Rs.1 lakh and remittances, but will not advance loans or issue credit cards. So in other words, they will provide barebones facilities aimed at covering the vast swathe of population that has no access to financial services. They will take deposits, convey remittances and dispense payments to recipients, making them ideal for migrant workers who need to send money home, for instance. 

They will not engage in lending - this will reduce the need for skilled credit staff and cut down costs significantly.

Applicants that sought licences have tied up with a range of partners. "The applications were screened for financial soundness, i.e., five-year track record of the promoter and the key entities of the promoter group," RBI said in a statement. "The assessment also included governance issues with a focus on 'fit and proper' criteria for promoters based on due diligence reports and/or any other information indicating deliberate and repeated violations of law/regulations." 

“It has selected entities with experience in different sectors and with different capabilities so that different models could be tried,” the RBI said in a press release.

However, as this is the first time, the central bank said: “It would be difficult at this stage to forecast the most successful likely model in the emerging business of payments.”

In-principle nod for payments banks valid for 18 months
The RBI said all selected applicants had “the reach and the technological and financial strength to service hitherto-excluded customers across the country.”

The “in-principle” approval will be valid for 18 months, when the applicants have to comply with the requirements under the guidelines and fulfil the other conditions so that the central bank would consider granting them licence for starting business.

After issuing the final guidelines for licensing of payments banks on November 27, 2014, the RBI received 41 applications for payment banks.

Going forward, the RBI said, it intends to use the learning from this licensing round to revise the guidelines and move to giving licences more regularly, virtually “on tap”.

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