Need for Payment Banks
1. A vast majority of the rural population (over 60%, as per RBI), is still unbanked or underbanked. An easily accessible payments network and universal access to savings is fundamental to financial inclusion.
2. Being included in the formal financial system helps people:
- Make day-to-day transactions, including sending and receiving money.
- Safeguard savings, which can help households manage cash flow spikes, smooth consumption and build working capital.
- Finance small businesses or microenterprises, helping owners invest in assets and grow their businesses.
- Plan and pay for recurring expenses, such as school fees.
- Mitigate shocks and manage expenses related to unexpected events such as medical emergencies, a death in the family, theft, or natural disasters.
- Improve their overall welfare.
Research also shows that more inclusive financial markets are directly linked with economic growth and employment. Additionally, policymakers increasingly recognize that a financial market that reaches all citizens allows for more effective execution of other social policies and development priorities.
Payment banks formation
- On 23 September 2013, Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, headed by Nachiket Mor, was formed by the RBI.
- Among its various recommendations, it recommended the formation of a new category of bank called payments bank.
- On 27 November, RBI released the final guidelines for payment banks
- In February 2015, RBI released the list of entities which had applied for a payments bank license. There were 41 applicants.
- It was also announced that an external advisory committee (EAC) headed by Nachiket Mor would evaluate the license applications.
- On 19 August 2015, the Reserve Bank of India gave “in-principle” licenses to eleven entities to launch payments banks
- Out of these, three have surrendered their licenses. First one being “Chalomandalam Distribution Services”, then “Sun Pharmaceuticals” and the latest, “Tech Mahindra”.
- India Post Payments Bank is the third entity to receive payments bank permit after Bharti Airtel and Paytm.
What is a payment bank?
A Payments Bank is a “differentiated bank” set-up under the guidelines issued on Nov 27, 2014 by the Reserve Bank of India (RBI) to further financial inclusion for the underserved population by providing
Current and savings accounts and Payments or remittance services to migrant labour workforce, low income households, small businesses, unorganised sector entities and other users. This is to be done by enabling high volume-low value transactions in deposits and payments or remittance services in a secure technology-driven environment
- The minimum capital requirement is 100 crore.
- Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India.
- The majority of the bank’s board of directors should consist of independent directors, appointed according to RBI guidelines.
- The bank should be fully networked from the beginning.
- The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will be capped at 100,000 per customer. The bank cannot undertake lending activities. 25% of its branches must be in the unbanked rural area. The bank must use the term “payments bank” in its name to differentiate it from other types of bank.
- These will be registered as public limited company under the Companies Act, 2013
Department of post
- The Department of Posts, trading as India Post, is a government-operated postal system in India. Also known as “the post office”, it is the most widely distributed postal system in the world.
- The postal service is under the Department of Posts, which is part of the Ministry of Communications and Information Technology of the Government of India.
- As of 31 March 2015 : 154,939 post offices, of which 139,222 (89.86%) were in rural areas and 15,826 (10.14%) in urban areas.
- On average, a post office serves an area of 21.22 square kms (8.19 sq mi) and a population of 8,054.
- Because of its reach and presence in remote areas, the Indian postal service is also involved in other services such as small-savings banking and financial services.
- Postal Life insurance
- Postal savings
- Data collection
- E-Commerce delivery
- Post boxes and post bags for mail receipt
- Identity cards for proof of residence
Indian post payment bank (IPPB)
- CEO: Mr. Ashok Pal Singh
- Independent Director: R. S. Sodhi
- India Post Payments Bank was incorporated on 17th Aug 2016.
- India Post Payments Bank (IPPB) on 30th Jan 2017 started its operations by rolling out pilot services in Raipur and Ranchi.
- Government has allocated Rs 500 crore to India Post Payments Bank for financial year 2017-18 as it gears up to set up 650 branches across country by September 2017.
- The allocation to IPPB is part of Rs 1,034.13 crore earmarked for the Department of Posts.
- The second part of the total allocation, Rs 279.6 crore, has been allocated for providing IT hardware and software in identified rural areas for improved access to services and customer satisfaction, resulting in increase in customer transactions, traffic and revenue.
- They are targeting three segments with a bottom-up approach.
1. The first is the 250 million people who don’t have mobile phones and are typically the DBT (direct benefits transfer) beneficiaries.
2. The second is the middle layer, the 500 million people who have feature phones.
3. The third segment is the 250 million smartphone users.
- The bank will offer an interest rate of 4.5% on deposits up to Rs25,000; 5% on deposits of Rs.25,000-50,000 and 5.5% on Rs.50,000-1,00,000.
- The aim is to have a branch in every district and make 3 lakh postmen come alive in payment bank function
- Also 1,000 ATMs of India Post will be transferred to IPPB, according to Mr. Singh.
- In mutual funds starting focus will be on Index funds.
- Partnership with Punjab National bank for help in interim technology solutions.
- Interim technology means, a standard CBS (core banking solution) is not really designed for high volume payment transactions. They are just using Punjab National Bank’s platform to test the technology with their kind of customers.
Basic services offered
- PPB offers 3 distinct accounts, tailored to suit the requirements of people everywhere.1. Regular Account – Safal
2. Basic Savings Bank Deposit Account (BSBDA) – Sugam
3. BSBDA Small – Saral
- While the Safal Account is packed with features, the Saral ccount is aimed at people with limited banking experience.
- Domestic Remittance Services:
1. IPPB will provide an inexpensive and secure medium to transfer funds via its domestic remittance offering.
2. All customers of IPPB would be eligible to avail a host of different modes of domestic remittance subject to the stipulated constraints – NEFT, IMPS, AEPS (Aadhar Enabled Payment System), UPI (Unified Payment Interface) and *99# (Mobile banking)
- Direct Benefit Transfer (DBT)
Funds from the disbursing agency are automatically credited into the beneficiary accounts through NACH/APBS instead of cash disbursal. IPPB will provide cash out of the subsidies at the customer’s doorstep by combining this service with Doorstep Banking.
- Doorstep Banking
Doorstep banking allows a customer for a nominal fee to request and avail banking and related services at their door. The services currently offered are as follows:
1. Cash deposit
2. Cash withdrawal
3. Balance enquiry
4. Aadhaar to Aadhaar funds transfer
Tagline: “Aapka bank, aapke dwaar”
Banking on Aadhaar without bank accounts
- The way it will work is, take for example MGNREGA payment to a worker is sent to the nearest post office mentioning his/her Aadhaar number. The worker will go to the post office, complete the Aadhaar authentication process, and just take out that money.
- There will be various options with him apart from just taking cash—he/she can open an account with the IndiaPost payments bank immediately as the e-KYC process is complete with Aadhaar authentication, or just take a pre-paid card which can be used in any ATM to withdraw cash or make payments anywhere just as a debit card does.
- Switch to normal transaction between two persons, and the same thing can be replicated through mobile wallets without bringing in any bank account.
- Going ahead, India Post is planning to equip the postman with biometric authentication and payment machines to remove the hassle of even going to the post offices.