PAYMENTS BANKS AND IPPB

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Context

• The Union Cabinet has approved financial support of Rs 820 crore for India Post Payments Bank.

 

Objectives

The objective of the support is

• To build the most accessible, affordable and trusted bank for the common man;
• Spearhead the financial inclusion agenda by removing the barriers for the unbanked and;
• Reduce the opportunity cost for the under banked populace through assisted doorstep banking.
• The project supplement government of India’s vision of “less cash” economy and at the same time promotes both economic growth and financial inclusion.

What are Payment Banks?

• Based on the recommendations of the Nachiket Mor Committee, Payments Bank was set up to operate on a smaller scale with minimal credit risk.
• The main objective is to advance financial inclusion by offering banking and financial services to the unbanked and underbanked areas, helping the migrant labour force, low-income households, small entrepreneurs etc.
• They are registered under the Companies Act 2013 but are governed by a host of legislations such as Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007
• India currently has 6 Payment Banks namely:

1. Airtel Payment Bank,
2. India Post Payment Bank,
3. Fino,
4. Paytm Payment Bank,
5. NSDL Payment Bank and
6. Jio Payment Bank.

 

Features of Payment Banks

• They are differentiated and not universal banks.
• These operate on a smaller scale.
• It needs to have a minimum paid-up capital of Rs. 100,00,00,000.
• Minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall at least be 40% for the first five years from the commencement of its business.

 

Activities that can be performed by Payment Banks

• Payment banks can take deposits up to Rs. 2,00,000. It can accept demand deposits in the form of savings and current accounts.
• The money received as deposits can be invested in secure government securities only in the form of Statutory Liquidity Ratio (SLR). This must amount to 75% of the demand deposit balance. The remaining 25% is to be placed as time deposits with other scheduled commercial banks.
• Payments banks will be permitted to make personal payments and receive cross border remittances on the current accounts.
• It can issue debit cards.

 

Activities that cannot be undertaken by Payment Banks

• Payment banks receive a ‘differentiated’ bank license from the RBI and hence cannot lend.
• Payment banks cannot issue credit cards.
• It cannot accept time deposits or NRI deposits.
• It cannot issue loans.
• It cannot set up subsidiaries to undertake non-banking financial activities.

 

Advantages of Payment Banks

• Expansion of rural banking and financial inclusion.
• Expansion of the formal financial system.
• Effective alternative to commercial banks.
• Efficiently deals with low value, high volume transactions.
• Access to diversified services.

 

Challenges faced

• Lack of awareness among the masses to access these services.
• Lack of incentives for the agents to involve themselves in these activities.
• Lack of infrastructure and access to operational resources.
• Technological hurdles.

 

IPPB

• India Post Payments Bank, abbreviated as IPPB, is a division of India Post which is under the ownership of the Department of Post, a department under Ministry of Communications.
• Opened in 2018 India Post Payments Bank is a 100% central government-owned entity.
• The Payment bank was started with the vision to build the most accessible, affordable and trusted bank for the common man in India.
• The main objective is to promote financial inclusion in a simple and secure manner at the customers' doorstep.
• It aims to utilize nearly 1,60,000 post offices as access points and 3 lakh postmen and Grameen Dak Sewaks to provide doorstep banking services.
• It delivers simple and affordable banking solutions through innovative interfaces available in 13 languages.

Services offered by the Bank

• It offers savings accounts, money transfers and insurances through the 3d parties, bill and utility payments.
• The Bank offers savings and current accounts up to a balance of ₹2 Lakh.
• Customers can use QR code payments eliminating the need to remember account numbers, PINs and Passwords.
• Unified Payments Interface (UPI)
• Immediate Payment Service
• National Electronic Funds Transfer
• Real-time gross settlement
• Bharat BillPay
• Direct Benefit Transfer
• RuPay Debit Card
• AEPS (Adhaar Enabled Payment Service)

 

According to the data released in January 2022, the India Post Payment Bank had crossed the landmark of 5 crore customers.

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1820526