Posted in Finance Articles, Total Reads: 909
, Published on 02 January 2016
Payment banks can accept deposits up to Rs. 1 lakh per customer and are allowed to give interest on the money deposit by the customers. It can be used either as current account or savings account. Only major difference between payment banks and regular banks is that former cannot be involved in lending activities or issue credit card. It has to 75% of its money in government securities. These kind of banks can issue debit card or ATM to its customers, so that they can withdraw money from anywhere.
The objective behind creating these banks is to improve financial inclusion, by making it simpler for the people to get bank accounts. That’s why the deposit limit is also restricted. While many people may perceive deposit limit as very low, but for the people outside the banking system this is a decent limit.
The companies that have been selected by RBI belong to different industries like renowned Paytm mobile wallet, telcom companies like Airtel, Reliance and Vodafone, which already have high customers base throughout India, will be able to convert cash into virtual money. Also, Airtel and Vodafone already have Airtel money and m-pesa services respectively, which has thousands of users. Adding to that, we have couple of micro-finance companies and also Indian post, which has apparently 1.5 lakh post offices pan India.
Payment banking will definitely revolutionise the banking system. There are many reasons for that:
Firstly, payment banks will help traverse the last mile between bank branches and the customers living in the remote places. These banks will mainly rely on technology to reach its customers, they will be using mobile as the medium of banking. In this technology era, mobiles can reach where human can’t. All day-to-day activities like paying utilities bills, transferring of money etc. can be done remotely.
Secondly, competition in the banking space will become intense, which in turn will lead to lower banking cost. Currently, we pay lot of charges like, maintenance of minimum balance, ATM transaction charges after allowable transactions and many other. These will reduce as payment banks starts offering zero-balance account and low-cost services.
Thirdly, the payment banks including Indian post will help greatly in subsidy schemes. As the Indian post has over 1.5 lakh post offices. So, with this government can easily route the benefits through regular banks and payment banks. Another, difference between regular banks and payment banks is that payment banks can reach quickly through mobile networks where regular banks with branches will take another 5-10 years.
Moreover, this will also promote cash-less banking, that is, with time, debit and credit role can be done by mobile. Because of which, expansion of ATM’s in cities can be reduced and focus can be shifted to rural areas. The biggest advantage that payment banks can have is by being an additional tool in government pocket to curb black money, this can be done by banning the cash transaction as soon as 95 percent mobile banking and Jan Dhan is achieved.
Also, Payment banks can only invest in government securities with less than one year. With this, government will be the biggest beneficiary of payment banking. Even now, banks are the major investor in government securities. With additional money from payment banks for securities with less than one year of maturity will further help in bringing short-term loan rates lower. This means government can now borrow more cheaply. One advantage that depositors can have by deposing their money with payment banks is to earn higher interest on their deposits compare to the 4 percent interest that regular banks give on deposits. This can begin the rate war between regular banks and payment banks, whose end beneficiaries will be customers.
We, also have to remember, payment banks can impact small and medium public banks in a bad way. Public sector banks get most of their cheap funds from rural areas, which has been slowing down in recent past. Indian posts have already been offering long-term deposits in rural areas and with 1.5 lakh Indian posts which is far greater than 44,700 branches of public sector banks in rural reaches. Indian posts possess real danger to public sector banks as they can cannibalize the cheap fund of public sector banks. As public sectors is already sitting on high bad loans and with lowering CASA (current account and saving account), can be real worry for these banks.
Also, RBI is in final stage of evaluating the application of small finance banks, which is expected to out somewhere next month. Small banks will mainly focus on small borrowers. So, with this Indian banking space will become more competitive. The era of consumer is finally at hand.
The article has been authored by Shivam Agrawal, TAPMI
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