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In this article, we would discuss about the nnecessary conditions that need to be fulfilled by payments banks, their features and arguments against them.
Pre-requisites for
PBs set by the RBI
-Minimum capital requirement is Rs.100 crore
-A promoter/promoter group can have a joint venture with an
existing scheduled commercial bank to set up a PB.
-The promoter (the main entity) should have a minimum stake
of 40% for the first five years, 30% for 10 years and 26% for 12 years from the
date of commencement of business. For instance, RIL has tied up with State Bank
of India and the former will hold 70% stake in the joint venture.
-The foreign shareholding in the payments bank would be as
per the Foreign Direct Investment (FDI) policy. It is set at 74% similar to
private sector banks.
Features of PBs
-PBs can accept demand deposits like current and savings
bank accounts with a ceiling limit of Rs.1 lakh per customer.
-These deposits would be covered under the deposit insurance
scheme of the Deposit Insurance and Credit Guarantee Corp. of India (DICGC), a
wholly-owned subsidiary of the RBI.
-Interest on the deposits will be as per the rate set by the
RBI.
-They cannot extend loans and hence there is no fear of
NPAs.
-They can issue debit cards but not credit cards.
-They will also have to maintain CRR (cash reserve ratio)
similar to other scheduled commercial banks.
-Besides, they will have to invest atleast 75% of their
demand deposits in statutory liquidity ratio (SLR), eligible government
securities or treasury bills having maturity up to one year. This prevents any
credit risk.
-Their only earning would be fees charged as commission.
-Distribution of non-risk sharing simple financial products
like mutual fund units and insurance products, etc.
Arguments not in favour of PBs
– Many financial experts argue that this ‘borrowed model’ is
already being provided by big banks under their mobile/digital banking platform.
Thus, it would have been prudent to let these banks provide a combination of
banking, investments and insurance services through their network.
– Also, it would have been easy to direct PPIs to pay interest
on the amounts stored in digital wallets.
– Scheduled commercial banks can open a PB as their
subsidiary, which negates the meaning of PBs being differentiated banking
systems. This will also prove detrimental for independent entities. Big banks
with their expansive reach, experience and human resources can trample the
business of a smaller entity’s PB.
**However, it can also be vice-versa (hence in favour of PBs).
Private banks like ICICI and HDFC have hitherto only had public sector banks
(PSBs) as competitors. Experts assert that PBs will offer lower transaction
costs, improved service standards, technological innovation and an even wider
network. For instance, Department of Post has a network of 1, 54,882 post
offices (as of 2014) across India, of which over 90% is in rural areas. On the
other hand, SBI, India’s largest public sector lender has 15,869 branches,
43,515 ATMs and tie up with 54,487 business correspondents.
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