The Reserve Bank of India is mulling on offering fresh licenses for setting up small finance banks, which can be availed by payments banks as well, reports Moneycontrol. The report also said that these licenses wouldn’t be limited just to payments bank; other entities can also apply for it. MediaNama could not verify this independently.
Payments banks are not allowed to offer loans, take NRI deposits, set up non-banking-financial businesses or issue credit cards. The report says that if allowed to become small finance banks, payments banks would be able to offer microloans. In July this year, India Post Payments Bank said it will be converted into a small finance bank.
Payments banks in losses
Payments banks have been recording losses for some time now. In January, the RBI said in its trends and progress report 2017-18, that payments banks had recorded losses for two successive years. The consolidated balance sheets of payments banks showed net losses of Rs 516.5 crore in FY17-18, almost double from the previous year, when they lost Rs 242.2 crore. The operating profits of these banks also remained negative, with losses of Rs 522.1 crore in FY17-18, up from Rs 240.7 crore the previous year, the RBI report said.
A challenging business model
Conceptualised by the RBI in 2014 to extend banking services to those unserviced by traditional banks, payments banks seemed like a new model of banks in which deposits are restricted to Rs 1 lakh. They also offer remittance services, mobile payments, ATM/debit card facilities and third-party fund transfers but cannot issue loans or credit cards.
Apart from that, RBI’s master circular on prepaid payment instruments (PPI), released in February, directed that users who do not complete the full KYC process will not be allowed to load money into their wallets – this requirement has made customer on-boarding expensive for payments banks, who have been urging the RBI to look into video KYC as a possible alternative to in-person KYC in order to reduce costs.