Ed. Note: This post by Vishal Rackecha is a part of the TLF Editorial Board Test 2016.
One of the greatest problems for the Indian Economy faces today is the problem of financial inclusion and the lack of credit in rural areas and for micro industries. In 2013, the Reserve Bank released a paper based on the findings of a committee under the chairmanship of Nachiket Mor. This committee said that services provided through mobiles and other internet portals are a low-cost method and under the right regulatory setup would have the potential bringing financial services to places where the formal banking setups find it unviable or unprofitable to setup branches. This is because having both credit and savings functions is necessary. The committee suggested that allowing non-banking businesses with huge customer bases and comprehensive data about the consumers will be able to increase the reach of the requisite facilities in regions where they are not available.
Payment banks would provide be able to provide services such as payments and holding demand deposits to their customers. The concept of payment banks also brings with it the benefits of having a robust payment mechanism at your fingertips and yet not having to spend on the costly infrastructure and manpower required to maintain an actual bank.
The RBI issued in December 2014 released guidelines for payment banks for an entity to register itself as a payment bank. Eligible promoters should be in pre-paid payment instrument (PPI), Non-banking financial institutions (NBFC’s), telecom operators and supermarkets. Another factor was that these entities should have a good track record and having had properly run their business for a minimum period of 5 years.
Each individual account would be allowed to deposit a maximum sum of 1 lakh rupees; they would be given interest on these savings. These banks would be allowed to issue debit-cards and ATM cards. All their services have to be accessible through mobile; and will be used for automatic cashless and chequeless payment of bills. Payment banks cannot undertake lending activities. They will also provide services like being able to transfer money from the accounts via mobile. RBI has also, with TRAI issued rules for telecom operators on the charges for the services of these payment banks.
Payment banks would have to maintain CRR and SLR based on RBI guidelines. The minimum paid-up capital would be 100 crores and their outside liabilities should not exceed more than 33.33 percentage of their net worth. The minimum initial capital requirement paid by the promoter has to be 40% of the entire investment made and the foreign investment would vary according to that private sector banks. Each of these banks has to have a fully networked and technology driven system of functioning from the beginning. Presently 11 payment banks have been issued licenses; this includes Vodafone m-pesa, Aditya Birla Nuvo Ltd, Department of Posts, etc.
These ‘banks’ will go a long way in shaping the financial sector in the nation and will lead to inclusion of presently uncared for section of the Indian economy. This will though not change the monopoly the traditional banks have over the credit supply. It will also go on to promote the goals of both Pradhan Mantri Jan Dhan Yojana and Digital India of including more and more Indians in the organised sector of finance but also make cashless payments more accessible for the poorer sections. This is because the chances of creating a branch in remote village are far lesser than being able to take a mobile phone there. The system though has its promises and will change the dynamics of this sector, assessing the true potential of the system will not be possible till it is implemented in its entirety.
Tech Law Forum @ NALSAR 