Payment Banks

Reliance Industries, India Post, Bharti Airtel, Vodafone and Paytm are among 11 applicants that have got `in principle' approval for setting up payments banks that will provide barebones facilities aimed at covering the vast swathe of population that has no access to financial services. They will take deposits, convey remittances and dispense payments to recipients, making them ideal for migrant workers who need to send money home, for instance. They will not engage in lending. Apart from India's top phone companies and the post office, others that have got initial Reserve Bank of India approval out of 42 applicants include Sun Pharma founder Dilip Shanghvi, Aditya Birla Nuvo, Fino PayTech, Tech Mahindra, National Securities Depository and Cholamandalam Finance. Applicants that sought licences have tied up with a range of partners. “The applications were screened for financial soundness, i.e., five year track record of the promoter and the key entities of the promoter group,” RBI said in a statement. “The assessment also included governance issues with a focus on ‘fit and proper’ criteria for promoters based on due diligence reports and or any other information indicating deliberate and repeated violations of law regulations.” Those that didn’t make the cut include Muthoot Finance, Future Retail’s Kishore Biyani and Videocon. The central bank chose the applicants based on their assessed ability to reach customers with technology along with the financial strength to roll out services in areas that remain uncovered, RBI said. The central bank kept the hopes of many applicants alive by promising to move to a process of “on tap” licensing.

Existing banks may lose some business, even though some of the bigger ones have launched wallets and other app-based functions. Companies that provide wallet services such as Oxigen or Itz Cash could also face pressure. RBI Governor Raghuram Rajan had promised to end the era of unified banking licences, of which very few have been issued, which kept more than half the nation unbanked until Prime Minister Narendra Modi’s Jan Dhan Yojana made it possible for nearly every household to have an account. If payments banks succeed, rural India could be sold more financial products such as insurance and mutual funds, channelising savings into productive purposes. Payments banks can distribute third-party financial products but can't lend or issue credit cards.They will have to invest most of their deposits in government securities and keep the balance with banks. Promoters need to have least Rs.100 crore in capital.