Banking Version 2.0: RBI gives in-principle approval for 11 Payment Banks

The payments banks are expected to be scaled-down versions of bigger banks and provide simple facilities aimed at covering the vast majority of the population, which is unbanked currently. They can take deposits upto Rs. 1 lac, provide remittances and disburse payments to intended recipients.

RBI has finally opened doors for establishment of Payment Banks in India. Yesterday, RBI gave in-principle approval to 11 applicants. Some of the biggest names in India got the license in current tranche. These include Reliance Industries, India Post, Bharti Airtel, Vodafone, Paytm, Sun Pharma founder Dilip Shanghvi, Aditya Birla Nuvo, Fino PayTech, Tech Mahindra, National Securities Depository and Cholamandalam Finance.
 
The payments banks are expected to be scaled-down versions of bigger banks and provide simple facilities aimed at covering the vast majority of the population, which is unbanked currently. They can take deposits upto Rs. 1 lac, provide remittances and disburse payments to intended recipients. They are not allowed to give loans though. They can still distribute third-party financial products but can't issue credit cards. Also, these banks are required to invest a major chunk of their deposits in government securities and keep the balance with regular banks.
 
The successful applicants were chosen from a total of 42 original applications. Most of the winning applicants have tied up with a range of partners. In giving out the licenses, RBI has made sure that parameters like historical records of promoters, 'fit and proper' criteria for promoters, financial soundness, five-year track record in dealings, ability to reach customers with technology and financial strength to roll out services in areas that remain uncovered, are taken into account.
 
The 31 applicants which did not get the license include names like Muthoot Finance, Future Retail's Kishore Biyani and Videocon. But RBI has made it clear that very soon, it will move to a process of 'on-tap' licensing. This means that applicants can seek licenses whenever they want to.
 
The threat to existing banks is imminent. But to say that it will be easy for payment banks to gain market share will be wrong. Existing banks have been in the business for long and are already taking steps to tackle the on-coming attack of payment banks. Many have already launched their own wallets and basic banking apps. But it is a given thing that payment banks can reach where existing banks can’t. And this will definitely result in existing banks losing some of their business.

The issue of payment bank licensing is in line with RBI’s new mandate to end the concept of unified banking licenses. And this intent is borne out of the fact that the existing approach resulted in more than half the nation remaining unbanked even after more than 68 years of independence. So if payments bank can succeed, it will auger well for India’s overall growth as savings from smaller households can be channelized into more productive purposes.