PAYMENT BANKS : REASON AND EFFECT

Presented by:- Mukesh & Suresh

B.Com Final year

DEPARTMENT OF COMMERCE AND MANAGEMENT SCIENCENSCB COLLEGE,SAMBALPUR,ODISHA,INDIA

Guided by:- Sir Priyabrata Panda

TOPIC OUTLINE INTRODUCTION OBJECTIVE OF STUDY RELEVANCE OF STUDY DATA COLLECTION NEED OF PAYMENT BANK IN INDIA. FUNCTIONS OF PAYMENT BANKS OTHER ASPECTS SELECTED PROMOTERS FOR PAYMENT BANKS: TIMELINES OF PAYMENT BANKS  SUMMERY AND FINDINGS: CONCLUSION REFFERENCE:

INTRODUCTION

• Indian economy is experiencing with a new banking structure by the emergence of two new banking concepts i.e. payment bank and small finance bank. RBI has already given its nod to the licence of payment banks. The core objective of setting up of payments banks will be to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users. On the other hand small finance bank may come out from the pipeline in near future with an objective to supply of credit to small business unit, small and marginal farmers, micro and small industries, and other unorganised sector through high technology-low cost operations.

INTRODUCTION Continue...

• The new banks which are expected to reach customers mainly through their mobile phones rather than traditional bank branches. One could make payments to the milk men and domestic help through his mobile rather than going to the bank, withdrawing cash and then handing it over to them.

• In less than 10 years, every Indian will have a bank account. Payment banks are the key enablers.

OBJECTIVE OF STUDY

The study is conducted to reach the following two objectives.

• To analyse the functions of payment banks.

• To study its effect on Indian economy.

RELEVANCE OF STUDY

After nationalisation of banks, for the first time private firms is allowed in banking sector. Whether to allow private companies in banking business is itself a debate. This study focuses on the working of payment banks in pros and cons. This new concepts need to be diagnosed in toto.

DATA COLLECTION

Data is collected from secondary sources. From different journal, magazine, news paper, private and government websites like rbi.org.in, business-standard.com, ndtv.com, economictimes.com etc. are searched.

NEED OF PAYMENT BANK IN INDIA

The underlying objective is to use these new banks to push for greater financial inclusion. Currently, almost 50% of Indians don’t have a bank account and only about 30,000 of India’s 5.94 lakh villages have a commercial bank branch. Much of this imbalance has to do with the inability of bigger banks to reach into the hinterland.

FUNCTIONS OF PAYMENT BANKS•They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.•They can enable transfers and remittances through a mobile phone.•They can offer services such as automatic payments of bills, and purchases in cashless, cheque less transactions through a phone.•They can issue debit cards and ATM cards usable on ATM networks of all banks.

FUNCTIONS OF PAYMENT BANKS CONTINUE…

• They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.

• They can provide forex cards to travellers, usable again as a debit or ATM card all over India.

• They can offer forex services at charges lower than banks.

• They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’

OTHER ASPECTS•Deployment of funds: a. The payments bank cannot undertake lending activities. b. Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75 per cent of its "demand deposit balances" in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. •Capital requirement:

The minimum paid-up equity capital for payments banks shall be Rs. 100 Crore. The payments bank should have a leverage ratio of not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).

OTHER ASPECTS CONTINUE…

• Promoter's contribution: The promoter's minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business.

• Foreign shareholding:

The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.

• Additional Criteria:

a. The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms. b. The bank should have a high powered Customer Grievances Cell to handle customer complaints.

SELECTED PROMOTERS FOR PAYMENT BANKS

Presently eleven firms are given license for opening payment banks. The promoters are as follows.

1. Aditya Birla Nuvo Ltd, 2. Airtel M Commerce Services Ltd,3. Cholamandalam Distribution Services Ltd, 4. Department of Posts, 5. Fino PayTech Ltd, 6. National Securities Depository Ltd, 7. Reliance Industries Ltd, 8. Dilip Shantilal Shanghvi, 9. Vijay Shekhar Sharma,10. Tech Mahindra Ltd, 11. Vodafone m-pesa Ltd

Vijay Shekhar Sharma

Dilip Shantilal Shanghvi

TIMELINES OF PAYMENT BANKS

Aug 19, 2015 RBI grants “in principle” approval to 11 applicants for payment banks

Feb 04, 2015 RBI releases Names of Applicants of Small Finance Banks and Payments

Banks

Feb 04, 2015 RBI announces External Advisory Committee for evaluating Applications of

Small Finance Banks and Payments Banks

Jan 01, 2015 RBI extends last date of receipt of applications for Licensing of Small Finance

Banks and Payments Banks

Jan 01, 2015 Clarifications to the queries on the Guidelines for Licensing of Small Finance

Banks and Payments Banks

Form III - Form of application for a licence to commence banking business by

a company incorporated in India and desiring to commence banking business

Dec 08, 2014 RBI to post on its Website Clarifications on Guidelines on Licensing of Small

Finance Banks and Payments Banks

SUMMERY AND FINDINGS

The payment banks will bridge the last mile (or last 10-20 miles) between bank branches and the remote customer living in a rural hamlet.

• Payment banks will essentially rely on technology to reach payment services to all customers, using mobiles as the vehicle of banking. Mobiles go even where humans don’t.

• Physical bank branches (or bankers or ATMs) will still be needed for some functions - opening an account, depositing cash, etc - but all day-to-day payments, including peer-to-peer payments) can be done remotely. The mobile phone will become the virtual ATM and small-payments cheque-book.

• Payment will provide low cost service to customer viz. Rate of interest of saving account may be from 5-7%. It raises competition with other commercial bank so commercial will also provide the same service at same cost to customer. Finally the customer will be the king.

SUMMERY AND FINDINGS CONTINUE...

• The difference between State Bank and Airtel is simply this: both have over 200 million customers, but Airtel can go where State Bank cannot with a branch.

• The arrival of payment banks - including India Post - will transform social welfare and subsidy schemes. Government subsidy payments to the poor - whether for LPG, kerosene or even food and fertiliser - can now be routed through regular and payment banks.

• India Post is already there in places where banks aren't there (with over 1.5 lakh post offices).

• Companies like Airtel and Vodafone and Idea (and Reliance Jio, when it enters mobile telephony later this year) will reach customers through mobile-enabled payment systems.

• The payment banks not only provide banking service but also provide insurance and mutual fund services. It will otherwise facilitate financial education and investment awareness to the rural people.

CONCLUSION

The public sector banks are just behaving sitting ducks and white elephants. They do not work efficiently. Recently government has pumped huge capital to certain public sector bank. Even though public sector, private sector or foreign bank do not have reach to rural so let change the traditional banking and foster a new concept of banking. This payment banks can largely help to jan dhan yojona, in addition it will drag the weaker section vulenerable into the financial inclusion process. Those small saving upto 1 lakh are created in this bank but in long run a huge capital may be formed. The hamlet dwellers without having investment knowledge can safely deposit their saving in payment bank not in chit fund or any other high risk investment area.

REFFERENCE

• The Business Standard, 21/08/2015• The Economics Times, 20/08/2015• www.rbi.org.in• www.ndtv.com

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