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The Reserve Bank of India (RBI) has come out with separate operational guidelines for payments bank after issuing final licensing guidelines in November 2014. Currently, there are 8 players who will commence operations in the coming year. These include: Airtel, Vodafone, Reliance Industries, Idea Cellular, Paytm, FINO Paytech, India Post and National Securities Depository Limited. Payments banks are expected to further financial inclusion, and will provide small savings accounts, and payments and remittance services.

Here is a lowdown of the guidelines:

1. Physical access points
– The RBI will have to approve payments banks’ annual plans for opening physical access points for five years. It may remove prior approval after five years after a review.
– For addressing customer grievances and agent support supervision, a payments bank is required to have a bank employee at a fixed location at the district level.

2. Regulation of business correspondents (BCs)

– Inter-operability of BCs will be allowed except for opening of savings and current accounts. In cases where a payments bank is acting as a BC for a commercial bank, the BCs from the payments bank cannot open deposit accounts for the partner bank or undertake KYC documentation for that bank.
– BCs cannot undertake any offline transactions and need to be connected to the Internet.
– Payments banks are exempted from having a base branch for a certain number of BCs or access points managed by BCs as as applicable to scheduled commercial banks.

3. KYC requirements

– Payments banks can rely only on electronic authentication or confirmation of terms and conditions for opening an account. A wet signature is not mandatory.
– In case of KYC done by a telecom company, which is a promoter of the payments bank and has the same quality as prescribed for a banking company, they may obtain the KYC details of the customer from that telecom company, subject to customer consent.

4. Bank deposits

– Payments banks are only permitted to open savings and current deposit accounts. The accounts will be limited to Rs 1,00,000. However, payments banks can make arrangements with other commercial banks if it crosses the limit, to be swept into an account opened for the customer at that bank. This arrangement should be activated with the prior written consent of the customer.
– Payments banks don’t need to issue passbooks and may provide statement of account in paper form on request on chargeable basis. They may provide account information through other modes such as SMS and internet banking.
– Payments banks have to provide electronic confirmation through SMS/e-mail/printed proof for each account transaction.

5. Investments norms

– Payments banks will invest 75% of demand deposits in government securities or treasury bills with maturity of one year for maintaining Statutory Liquidity Ratio. While the rest 25% of the deposits will be maintained as demand and timed deposits with other commercial banks.
– Payments banks will be permitted to invest in bank certificate of deposits (CDs) within the limit applicable to bank deposits.
–  The investments made out of their own funds shall not be in assets or investments where the promoter is a direct or indirect obliger. These banks will not be allowed to classify any investment, other than those made out of their own funds, as held-to-market (HTM) category.

6. Capital requirements

In the final guidelines, the RBI said that a payments bank should have paid-up equity capital of Rs 100 crore. They will also be required to maintain a minimum capital adequacy ratio of 15%.

The operational guidelines give a detailed breakup of the capital requirements:

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Restrictions on lending

Payments banks will not be permitted to lend to any person including their directors. However, they may lend to their own employees out of the bank’s own funds, as per a board approved policy outlining the caps on such loans.

Product approval

Payments banks have to submit to RBI a list of financial products they intend to offer while submitting application for a licence. Any new products proposed should be intimated to the RBI for information. The RBI may also place restrictions on design, functioning and other features of the product. It may even discontinue the product.

Image credit: Flickr user Philip Brewer under  CCBY license.