PAYMENTS BANKS AND IPPB

Description

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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:

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

Challenges faced

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)