Contact No
+91-9465331815
+91-9465331815
Contact Email
cayogeshmehra@gmail.com
cayogeshmehra@gmail.com
In the latest times, Payment Banks has got amazing as well as accessible hooks in its banking circle business. It is a new model introduced by the Reserve Bank of India (RBI), which accelerates transactions like a regular bank, except issuing credit cards and lending. Payment Banks is something that has got the potential to give extensions to the Government’s financial targets, which got considered as the next big thing.
Payment Bank brings more flexibility, convenience and eases the banking life. They also offer numerous services to the consumers utilizing a secured digital platform, which helps the Government to achieve “Digital India.” Thus, it is mandatory to obtain a Payment Bank License to open a Payment Bank. You must note that, U/s 22 of the Banking Regulation Act, 1949, the Reserve Bank of India issues the Payment Bank License to the applicants.
According to the RBI guidelines, the minimum required paid-up equity capital for opening a payment bank and receiving a Payment Bank License is Rs. 100 Cr. Correspondingly; the promoter must contribute at least 40% of the paid-up equity capital for the first five years of establishment. The foreign shareholding will be permitted as per the Foreign Direct Investment Policy (FDI Policy) as amended from time to time in payment banks for FDI in Indian private banks.
As we know that it needs a minimum of Rs 100 Cr. in the form of paid-up capital, RBI has well-defined a long list of qualified Promoters for the Payment Bank License. The applicants who qualify for the Payment Bank License procedure are stated below. Those are as follows:-
The activities permitted for a Payment Bank License Holder are given below:-
Existing Structure
Name of the promoter, residential status, date of birth, PAN No., parents’ names, branch, bank account details, and credit facilities.
Comprehensive and detailed information on the experience and background of the individual promoter, track record of business and financial worth, his/her expertise, details of promoter’s direct and indirect interests in several entities/ industries/ companies, etc.
Memorandum and Articles of Association, Shareholding pattern of the promoter entity, financial statements of the promoter entity for the past 5 years (Include important economic indicators), and income tax returns for the last 3 years.
Names of the individuals and entities, management, and corporate structure of all the entities, details of shareholding, a pictographic organogram representing the structure, shareholding, and total assets of the entities possess.
Submit Annual reports of the past 5 years of all the group entities.
Name of all the Entities and Individuals in the promoter group (including non-financial, financial, and overseas entities) with particulars stated below:-
A project report showing viability of the proposed and bank business potential, the business plan, any other financial services planned to be offered, etc. as per the RBI guidelines, and any other information that is reflected as relevant.
The Regulatory Frameworks for Payment Bank in India are as follows:-
The scope of actions of a Payment Bank in India can be précised as given below:-
The Reserve Bank of India (RBI) issues licenses to carry on the business of payment banking and other companies in which banking companies may include, as described and defined in Sections 5 (b), and 6 (1) (a) - (o) of the Banking Regulation Act, 1949, individually. Payment Bank licensing process culminated with the announcement by the RBI "vide its Press Release dated April 2, 2014". It says that it will be granted "in-principle" approval to two applicants who would set up new banks in the private ventures within 18 months, only.
RBI proposes to use the learning experience from this licensing implement to revise the guidelines appropriately while pronouncing the decision to grant "in-principle" approval. It was also to move to grant licenses more frequently. Additionally, RBI would work on a policy of having various groups of "differentiated" bank licenses, which shall allow a wider pool of applicants into the banking sector.
One of the understandings in the discussion paper on Banking Structure in India – The Way Forward on August 27, 2013- was a need for place banking in India. It was also said that distinguished licensing could be a desirable step in this direction, predominantly for infrastructure financing, retail banking, and wholesale banking. Relying on the comments and suggestions received on the draft guidelines the following guiding principle for licensing payments banks has been confirmed.
There is a requirement for savings accounts and transactions for the underserved people. Moreover, remittances have both macro-economic profits for the region who receives them, and micro-economic profits to the recipients. Therefore, the primary objective of setting-up of payments banks will be to further financial enclosure by providing (a) small savings accounts and (b) payments or remittance services to low-income households, migrant labor workforce, small businesses, other unorganized sector/entities, and other users.
It will be enabled by enabling high volume-low value transactions in deposits and payments/remittance facilities in a sheltered and protected technology-driven environment.
You must note that the existing PPI license holders could opt for conversion into payments banks also. A current PPI issuer doesn't need to apply for a payment bank license, and it may continue as a 'PPI issuer' as per the guiding principle issued by RBI.
A promoter/promoter group can get a "Joint Venture" with an existing listed commercial bank to set up a payments bank and get a license. Nonetheless, to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949, scheduled commercial banks can take an equity stake in a payments bank. If a government entity needs to set up a payments bank, it must first obtain important approvals from the Government, and submit the application.
The payments bank will contribute to the 'payment and settlement system.' It will have access to the "interbank uncollateralized - call money market," "collateralized repo," and CBLO market for provisional liquidity management.
You must note that the RBI prescribes no maximum shareholding limit for promoters. Yet, the payments bank's promoters must hold at least 40% of its paid-up equity capital for the first five years from the beginning of its business. The "scheduled commercial banks" can take an equity stake in a payments bank to the amount permitted U/s 19 (2) of the Banking Regulation Act, 1949 if the payments bank is set up as a joint-venture with equity partnership with a "scheduled commercial bank."
When the payments bank becomes systemically important and reaches the net worth of Rs.500 crore, diversified ownership and listing will be obligatory within 3 years of reaching that net worth of the Payment Bank. Still, payments banks having a net worth of below Rs.500 Cr. could also get their shares registered voluntarily, subject to completion of the requirements of the 'capital markets regulator.'
The Foreign Direct Investment (FDI) policy will govern foreign shareholding in the payments bank as per private sector banks as amended from periodical basis. The collection of foreign investment in a private sector bank from all bases will be allowed up to a maximum of 74% of the bank's paid-up capital as per the current FDI policy. At least 26% of the paid-up capital will have to be held by residents at all times. Moreover, the individual FII / FPI holding is constrained to below 10 % of the total paid-up capital in the case of 'Foreign Institutional Investors' (FIIs) / 'Foreign Portfolio Investors' (FPIs)
It is worth noting that any shareholder's voting rights in private sector banks are capped at 10%, under Section 12 (2) of the Banking Regulation Act, 1949. Moreover, this limit can be raised to 26 % in a phased manner by the RBI guidelines. Additionally, any acquisition of 5 % or more of paid-up share capital in a private sector bank will need prior approval of RBI as per Section 12B of the Act, which will also apply to India's payments banks.
All the applicants for the payments bank's license will be obligatory to furnish their project reports and business plans with their applications. The business plan for the application should address how the bank aims to achieve the purposes of setting up payment banks in India.
In the present times, Payments banks willing to convert themselves into SFBs (small finance banks) can apply for such a license only after 5 years of operations. According to the norms, the Existing Payments banks (PBs), which have completed five years of services and are controlled by residents, are also eligible for conversion into SFBs (small finance banks) after complying with all regulatory and legal requirements of various authorities and guidelines.
According to RBI, the minimum capital for setting up an SFB has been instructed at ₹200 Crore. Distinctly, specific regulations will be amended to strengthen further the role of UCBs in promoting financial inclusion and reduce the concentration risk in the introductions of primary (urban) co-operative banks. Moreover, it decided to bring UCBs with assets of ₹500 Cr. and above, under the reporting framework of the CRILC ("Central Repository of Information on Large Credits").
It is essential to define payment banks' position in the upcoming years before you step into the hassle of documentations and the lengthened procedure of payment bank license. The possible future of Payments Banks are hereby given below:-
