The idea of installments banks came a long time after the phenomenal accomplishment of the Pradhan Mantri Jan Dhan Yojana under which 5.52 crore new financial balances were opened in the primary seven day stretch of presenting the record. The possibility of installments banks was first reported by our finance minister, Arun Jaitley, in his lady spending discourse. The Reserve Bank of India (RBI) has begun giving endorsements for propelling installments banks in India. The peak bank has really given ‘on a basic level’ licenses to 11 elements to begin installments banks. These incorporate Aditya Birla Nuvo, Airtel, FINO Paytech, Reliance Industries, Paytm and Vodafone.
Anyway, what are payment banks? These are much the same as some other banks, just they will work on a little scale and will offer items that don’t have credit chance. At the end of the day, they won’t offer items such as Loans and Credit Cards.
Why payments banks now?
Money related incorporation has been the concentration for RBI for a long while now. Installments banks is an endeavor to ensure that all segments of society, incorporating individuals living in remote and provincial regions, approach keeping money offices. Installments banks are probably going to build the quantity of individuals in the keeping money framework. It will center around satisfying the money related vacuum felt by entrepreneurs and individuals from low-income groups including transient laborers and labourers.
Who can become a payments bank?
The Reserve Bank of India (RBI) has repaired a base paid capital of Rs. 100 crore as an underlying capital prerequisite for installments banks. Note this is about Rs. 500 crore for business banks. Along these lines, anybody from a cell phone specialist organization to a non-banking financial organization or even a grocery store retail chain can apply for an installments bank’s permit if they fulfill the least qualification criteria. RBI is taking a shot at particular rules for installments banks that will make it compulsory for them to meet money save prerequisites. They will have the capacity to put resources into just exceptionally fluid and safe speculations, for example, obligation securities. Promoters’ holding in installments banks must be no less than 40% for the initial five years which would then be able to be steadily diminished to 26% more than 12 years if so wanted by the promoters.
What services Payment Bank offer?
Payments banks can accept deposits up to Rs. 1 lakh, offer remittance services, mobile payments, transfers and provide net banking facilities. For all accounts held by the payments banks, the banks will have to pay an annual interest to the account holder. While RBI is yet to define the quantum of interest rate payable by payment banks to their customers, these banks might offer higher interest rates compared to commercial banks.
So, what will be the possible impact on the Indian banking system?
The first thing that payments banks will add to the industry is competition. Not that there is a lack of competition in the banking industry but it is more about players from different sectors setting up these payment banks bringing their own marketing ideas on board. Also, the more the competition, the better the services and products.
Coming to the second important impact, since payments banks are set up by players from different industries, they can bring in their own customers to the banking sector. Take Airtel for instance. Airtel has over 270 million customers. Now that it has set up its payments bank, it can woo all its customers to bring their money to this bank. In fact, it is already doing this by offering interest at the rate of 7.25% on its Savings Account. Also, payments banks will focus on having a wide network with easy access points in rural areas and hinterland of the country. So, their reach is expected to be better than commercial banks that follow the branch banking system. So, payments banks will certainly help bring more people into the banking system.
Another point is that consumers would be free to open both savings bank accounts and current bank accounts with payment banks. With this, payment banks are likely to attract both retail as well as business customers. Consider the India Post Payments Bank. This payments bank is looking to offer door-step banking. The bank will charge a nominal fee of up to Rs. 35 for this. This facility will be available for transactions that are less than Rs. 10,000. Facilities such as this are likely to help financial inclusion to a large extent.
Payments banks will also help financial inclusion by offering payment services to migrant workers and low-income households that shy away from banking. Workers living in cities and away from their rural homes will be able to send money directly to payments banks located in their village. These payments banks are more likely to be accessible by their immediate family members when compared to commercial banks.
With increasing competition in the core banking services especially in semi-urban and rural sectors, traditional banks have to offer superior customer service and competitive products to stay ahead. All this competition among banks is likely to benefit the customers. They will have to be provided with quality products, prompt service and convenient access to financial services.
Payments banks have the ability to change the face of rural India in the coming years. It all depends on how they position themselves and how good their products will be. Still, think commercial banks are safer? Maybe. But don’t forget to compare financial products across banks before you choose one. This includes Fixed Deposits.