CONTENTS

CHAPTER – I INTRODUCTION
1.1 Introduction
1.2 History of Payment Bank
1.3 Regulations
1.4 RBI Approved Payment Bank
1.5 Guidelines and Regulations provided by RBI for Payment Banks
1.6 Summary

CHAPTER – II METHODOLOGY

2.1 Scope of the Study

2.2 Objective of the Study
2.3 Data Source
2.4 Period of the Study
2.5 Guidelines of SEBI for Manipulation
2.6 Limitation of the Study

CHAPTER – III Operation Strategies of Payment Bank

3.1 JIO Begins Payment Bank Operations

3.2 NSDL Begins Payment Bank Operations
3.3 Airtel Begins Payment Bank Operations

CHAPTER – IV ANALYSIS & INTERPRETATION

4.1 Introduction
4.2 Analysis benefits of payment Bank
4.3 Analysis Payment banks are accessible to certain dos and don’ts
4.4 Summary

CHAPTER – VSUGGESTIONS & CONCLUSIONS

BIBLIOGRAPHY
INTRODUCTION
1.1 Introduction
Payments banks is a new model of banks conceptualised by the Reserve Bank
of India (RBI). These banks can accept a restricted deposit, which is currently
limited to ₹100,000 per customer and may be increased further. These banks
cannot issue loans and credit cards. Both current account and savings accounts
can be operated by such banks. Payments banks can issue services like ATM
cards, debit cards, net-banking and mobile-banking. Bharti Airtel set up India's
first live payments bank.
A payments bank is like any other bank, but operating on a smaller scale
without involving any credit risk. In simple words, it can carry out most
banking operations but can’t advance loans or issue credit cards. It can
accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile
payments/transfers/purchases and other banking services like ATM/debit
cards, net banking and third party fund transfers.

In September 2013, the Reserve Bank of India constituted a committee

headed by Dr Nachiket Mor to study 'Comprehensive financial services for
small businesses and low income households'. The objective of the
committee was to propose measures for achieving financial inclusion and
increased access to financial services.

The committee submitted its report to RBI in January 2014. One of the key
suggestions of the committee was to introduce specialised banks or
‘payments bank’ to cater to the lower income groups and small businesses so
that by January 1, 2016 each Indian resident can have a global bank
account.

Why payments banks? The main objective of payments bank is to widen the
spread of payment and financial services to small business, low-income
households, migrant labour workforce in secured technology-driven
environment.

With payments banks, RBI seeks to increase the penetration level of financial
services to the remote areas of the country.

Existing prepaid payment instruments (PPI model) like Airtel Money does not
give pay any interest on deposits.

Importance of Payment Bank

Payment banks can accept deposits restricted to Rs. 1 lakh per customer, and are allowed to
pay customers interest on the money that is being deposited. They can be used for either
current accounts or savings accounts. For companies that have operated as mobile wallets
(which are a type of Pre-Paid Instrument aka PPI), this is a big step forward as it raises the
funds limit, and allows interest to be paid on the deposits, making it more attractive for users
to store their money with a Paytm or m-Pesa.

Unlike a regular bank however, a payment bank can't loan money to people, or issue credit
cards. Also, the payment banks are only allowed to invest the money customers deposit into
government securities.

While the payment banks can't issue credit cards, they can issue ATM and debit cards. Since
many of the 11 new license holders already operate mobile wallets, the ability to issue an
ATM card helps close the loop and makes it easier to convert virtual money into cash, and
vice versa.

This is also very important when considered from the perspective of financial inclusion, as
someone could now fill cash into a m-Commerce bank account from Delhi, and a relative in a
small town who holds the debit card could withdraw cash from any ATM frictionless, or even
in a more rural location, through any point of sale terminal with a "business correspondent",
essentially an authorised partner for the bank. It's these partners - and theoretically the small
convenience shop in a village that sells mobile recharges could be one of them - that will
serve the purpose of bank branches, though the payment banks can set up branches if they
want.

Payment banks can be integrated with your savings bank accounts via IMPS and NEFT
transfers. As already mentioned, the payment banks ATM or debit cards will also work on all
banks' machines. Payment banks can't accept NRI deposits, which makes sense considering
the goal of financial inclusion.

1.2 History of Payment Bank

On 23 September 2013, Committee on Comprehensive Financial Services for Small

Businesses and Low Income Households, headed by Nachiket Mor, was formed by the
RBI. On 7 January 2014, the Nachiket Mor committee submitted its final report. Among its
various recommendations, it recommended the formation of a new category of bank
called payments bank. On 17 July 2014, the RBI released the draft guidelines for
payment banks, seeking comments for interested entities and the general public. On 27
November, RBI released the final guidelines for payment banks.
In February 2015, RBI released the list of entities which had applied for a payments bank
licence. There were 41 applicants. It was also announced that an external advisory
committee (EAC) headed by Nachiket Mor would evaluate the licence applications.[7] On
28 February 2015, during the presentation of the Budget it was announced that India
Post will use its large network to run payments bank. The external advisory committee
headed by Nachiket Mor submitted its findings on 6 July 2015. The applicant entities
were examined for their financial track record and governance issues. On 19 August
2015, the Reserve Bank of India gave "in-principle" licences to eleven entities to launch
payments banks. The "in-principle" license was valid for 18 months within which the
entities must fulfil the requirements and they were not allowed to engage in banking
activities within the period. The RBI will grant full licenses under Section 22 of
the Banking Regulation Act, 1949, after it is satisfied that the conditions have been
fulfilled.
Payment banks like Airtel payment banks are started with the sole purpose of taking
banking operations to nook and corner of the country. The public sector banks starting
in remote villages will be very expensive. So RBI approved 11 private entities in 2015 to
start payment banks.

Their operations are very simple. No credit cards, no loans. Max. deposit of 1 lakh rupees
hence acting like a bank to encourage the savings. Citing these reasons the capital
requirement is just ₹100 crore.

But in case of commercial banks the minimum capital requirement is Rs 500 crore. They
will be providing loans, credit cards, and even insurance. Airtel payments bank provide 1
lakh accidental insurance alone.

1.3 Regulations

The minimum capital requirement is ₹1 billion. For the first five years, the stake of
the promoter should remain at least 40%. Foreign share holding will be allowed in these
banks as per the rules for FDI in private banks in India. The voting rights will be regulated
by the Banking Regulation Act, 1949. The voting right of any shareholder is capped at
10%, which can be raised to 26% by Reserve Bank of India. Any acquisition of more than
5% will require approval of the RBI. The majority of the bank's board of directors should
consist of independent directors, appointed according to RBI guidelines.
The bank should be fully networked from the beginning. The bank can accept utility bills.
It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will
be capped at ₹100,000 per customer, but it may be raised by the RBI based on the
performance of the bank. The bank cannot undertake lending activities. 25% of its
branches must be in the unbanked rural area. The bank must use the term "payments
bank" in its name to differentiate it from other types of bank. The banks will be licensed
as payments banks under Section 22 of the Banking Regulation Act, 1949, and will be
registered as public limited company under the Companies Act, 2013.

1.4 RBI Approved Payment Bank

Of the 41 applicants, the list of RBI approved for provisional payments bank
licenses are: 11

1. Aditya Birla Nuvo Limited

2. Airtel M Commerce Services Limited
3. Cholamandalam Distribution Services Limited
4. India Department of Posts
5. Fino PayTech Limited
6. National Securities Depository Limited
7. Reliance Industries Limited
8. Shri Dilip Shantilal Shanghvi
9. Shri Vijay Shekhar Sharma
10. Tech Mahindra Limited
11. Vodafone m-pesa Limited
The following is the list of active payments bank.

1. Aditya Birla Payments Bank

2. Airtel Payments Bank
3. India Post Payments Bank
4. Fino Payments Bank
5. Jio Payments Bank
 6. Paytm Payments Bank
7. NSDL Payments Bank

1.5 Guidelines and Regulations provided by RBI for Payment Banks KYC
The RBI has issued an update to the Operating Guidelines for
Payments Banks with regard to KYC requirements while on boarding
customers of telecom companies, in the wake of the Airtel Payments
Bank rerouting of subsidies by creating Payments Bank accounts for
subscribers validating mobile phone numbers. The circular draws
attention to Section 14 of the Master Direction on KYC from February
25, 2016.

For the purpose of verifying the identity of customers at the time of commencement
of an account-based relationship, REs, shall at their option, rely on customer due
diligence done by a third party, subject to the following conditions:

a. Necessary information of such customers’ due diligence carried out by the

third party is immediately obtained by REs.
b. Adequate steps are taken by REs to satisfy themselves that copies of
identification data and other relevant documentation relating to the customer
due diligence requirements shall be made available from the third party upon
request without delay.
c. The third party is regulated, supervised or monitored for, and has measures in
place for, compliance with customer due diligence and record-keeping
requirements in line with the requirements and obligations under the PML Act.
d. The third party shall not be based in a country or jurisdiction assessed as high
risk.
e. The ultimate responsibility for customer due diligence and undertaking
enhanced due diligence measures, as applicable, will be with the RE.

Previously the Operating guidelines for Payments Banks. allowed

Payments Banks to utilise same KYC details if they are “of the same
quality as prescribed for a banking company.”

PBs should ensure that every customer, including customers of mobile

companies on-boarded comply with the KYC regulations, which could include
simplified account opening procedures. It is clarified here that if the KYC done
by a telecom company, which is a promoter / promoter group entity of the PB,
is of the same quality as prescribed for a banking company, PBs may obtain
the KYC details of the customer from that telecom company, subject to
customer consent.

However, now Payments Banks have to follow the RBI Master Direction
of KYC, and any amendments made to the same:

A PB shall comply with the extant RBI Master Direction on KYC, as amended
from time to time, for all its customers, including existing customers of telecom
companies on boarded by the PB.

The update further refers to Paragraph 8(i) that states:

At their discretion, PBs may (like all other banks) decide not to take the wet
signature while opening accounts and instead rely upon the electronic
authentication/confirmation of the terms and conditions of the banking
relationship/account relationship keeping in view their confidence in the legal
 validity and authenticity of such authentications/confirmations. However, all
the extant regulations concerning KYC including those covering the Central
KYC Registry, and any subsequent instructions in this regard, as applicable to
commercial banks, would be applicable to PBs.

The update clarifies that these instructions continue to be applicable

within the overall framework of the Operating Guidelines, but may not
be treated a part of the KYC requirements. It is not clear what this
means, as the paragraph is explicitly about KYC requirements.
This appears to have been done as an attempt to prevent the sort of
“piggybacking” that was seen with the Airtel Payments Banks accounts
being opened with a barely noticed pre-ticked box. This was enabled by
the previous guidelines that explicitly allowed the reuse of the
authentication done by telecom companies by the associated Payments
Bank – possibly with an intent to simplify account opening – without
explicitly forbidding it.

This update may create problems for the Payments Banks if it means
that the Payments banks will have to obtain the KYC for all their
customers enrolled through the telecoms all over again. However, it will
prevent the creation of accounts in the name of telecom subscribers
without their knowledge/noticing and is thus a more accountable
process. It is unclear whether this is so, because while the update
removes the explicit permission to obtain the KYC information from the
telecom, subject to customer consent, it does not actually say that the
Bank will have to reverify all their customers independently of the
telecom and the master direction already allows for trusted third parties
given that the Aadhaar e-KYC data is identical for telecom customers as
well as bank customers, it is unclear whether this can or cannot be used
by the Payments Bank, as long as it is clear that the Payments Bank is
responsible for the validity of the KYC of its customers.

1.6 Summary
The main objective of the payment bank is providing small savings accounts
and payments or remittance services to low income households, small
businesses, other unorganized sector entities and other users. RBI has taken
an advanced step to push our financial inclusions by providing the guidelines
for licensing differentiated banks such as Payment Banks and Small
Finance Banks. On November 27 2014, RBI released the final guidelines for
payment banks. These guidelines will allow mobile firms and other valid entity
to enter the banking field to service the individuals and small businesses.

METHODOLOGY
2.1 Scope of the Study

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.
2.2 Objective of the Study
1. To increase financial inclusion by offering small saving accounts and payment
remittance services to low-income households, migrant labour workforce, small
businesses and other unorganized sectors and other similar users.
2. To enable high volume and low value transactions in deposits and
payment/remittance services in a technology-driven environment.
3. To enable Efficient Payments System

2.3 Data Source

The present study collected all data for project form the websites of RBI, Yahoo
Finance and money control. All data collected for project in secondary in nature.

2.4 Period of the Study

The scholar wants to see that what guidelines should be provided by the RBI for
operation strategies of payment bank system. The above guidelines should work or not
and Users are protecting from it or not. The Study covers for the period from 2014 to
2017 i.e. three years’ continuous study.

2.5 Guidelines of RBI for Payment Bank

1 Minimum capital required should be Rs. 100 crore.
3 For the first five years, the promoter contribution should be at least 40%.
4 Excess shareholding could be brought down to 40% by the end of fifth year, to
30% by the end of tenth year, and to 26% in 12 years since the date of
commencement of business.
5 Foreign shareholding would be on similar rules for FDI set up for the private banks
in India.
6 The Banking Regulation, 1949 to regulate the voting rights.
7 Other entities except for promoters will not be allowed to have shareholding of
more than 10%.
8 Any acquisition of more than 5% will need approval from the RBI.
9 The majority of bank’s board of directors should include independent directors
who will be appointed as per the guidelines of the RBI. It should also have to
comply with the ‘fit and proper’ criteria meant for Directors as issued by the RBI.
10 The payment bank has to be fully networked and technology driven from the time
of its commencement.
11 25% of its branches have to be in the unbanked rural areas.
12 They must use the term “payment bank” so as to differentiate it from other type of
banks.
13 They will be registered as public limited company under the Companies Act, 2013.
14 The RBI has strictly said that the banks need to have a high powered ‘Customer
Grievance Cell’ to handle customer complaints and concerns.

14.1 Limitation of the Study

The study analysis all data in secondary in nature and that should be collected from
RBI and other websites. The study depends on reliable guidelines of RBI for operation
strategies of Payment Bank malpractices.

Operation Strategies of Payment Bank

3.1 JIO Begins Payment Bank Operations

The Reserve Bank today said Jio Payments Bank has commenced its banking services from today.

Reliance Industries Ltd NSE 1.65 % was one of the 11 applicants which were issued in-principle approval for
setting up a payments bank in August 2015.

"Jio Payments Bank Limited has commenced operations as a payments bank with effect from April 3, 2018," RBI
said in a notification.

Telecom major Bharti Airtel was the first to begin payment bank services in November 2016.

Paytm founder Vijay Shekhar Sharma promoted Paytm Payments Bank began operations from May 2017 last
year while FINO Payments Bank Limited kicked-off in in June last year.

Birla group's Aditya Birla Idea Payments Bank was the latest in this space whose operations were started from
February 22 this year.

While, the Department of Posts, which also got a license for a payment bank is yet to start its services formally,
who is running services on pilot basis currently.

Payments banks are being promoted by the Reserve Bank to further financial inclusion by giving services such
as small savings accounts, payment or remittance services to migrant labour workforce, low income households,
small businesses and unorganised sector entities as well as other users.

3.2 NSDL Begins Payment Bank Operations

NSDL Payments Bank has started its operations in the country,

informed the Reserve Bank of India (RBI) in its official communiqué.

RBI has granted in-principle approval to 11 applicants in November 2014,

including National Securities Depository Ltd (NSDL) to set up payments
banks.

Out of the approved applicants, Airtel Payments Bank, India Post

Payments Bank, FINO Payments Bank, Paytm Payments Bank, Aditya Birla
Idea Payments Bank and Jio Payments Bank, have already started their
operation.

As per the guidelines, these banks are permitted to accept deposits, and
issue ATM/debit cards, among other activities. They, however, cannot
issue credit cards, and perform lending activities.
 According to RBI, the Payments Banks and Small Finance Banks can
participate in the Call/Notice/Term money market both as borrowers as
well as lenders.

It added that such eligibility is valid before to the completion of the

process to get themselves included in the second schedule of Reserve
Bank of India Act, 1934.

NSDL is the largest depository in India. It was established in August 1996

and offers a bouquet of services ranging from end investors, stockbrokers,
stock exchanges, custodians, issuer companies etc through its wide
network comprising of more than 260 depositories participants’/business
partners.

The Banking & Finance Post is an initiative of Ellet’s Techno media Pvt Ltd,
existing since 2003.

3.3 Airtel Begins Payment Bank Operations

Airtel Payments Bank, a subsidiary of Bharti Airtel Limited on Wednesday rolled out a
pilot of its banking services in Rajasthan. The pilot is aimed at testing systems and
processes ahead of a full scale pan Indian launch. The banking services are rolled out
across 10,000 Airtel retail outlets in Rajasthan.

Airtel Payments Bank has become the first payments bank in the country to go live.
Customers in towns and villages across Rajasthan will now be able to open bank
accounts at Airtel retail outlets, which will also act as Airtel banking points and offer a
range of basic, convenient banking services such as cash deposit and withdrawal
facilities.

Airtel Bank has started the pilot with banking points at 10,000 Airtel retail outlets, with
a vision of expanding its merchant network in Rajasthan to 100,000 by the end of the
year, giving a big boost to digital payments ecosystem.

Airtel Payments Bank offer a range of services, which are as follows:

 Anyone (non-Airtel customers also) with an Aadhaar card can open a Savings
Account.
 Quick and paperless account opening using Aadhaar based e-KYC. This requires no
documents at all, only the customer’s Aadhaar number is needed.
 Customer’s Airtel mobile number will be his/her bank account number.
 Interest rate of 7.25 % p.a. on deposits in savings accounts.
 Money transfer to any bank account in India (Free money transfer from Airtel to
Airtel numbers within Airtel Bank).
 Personal Accidental Insurance of Rs 1 Lac with every Savings Account.
 Deposit and withdrawal facility across a network of Airtel retail outlets.
 Airtel Bank does not offer ATM/Debit Card facility, at present. Customers can
deposit or withdraw cash at any of the designated Airtel retail outlets.
Airtel Bank’s services can be accessed by Airtel customers on their mobile phones
through the Airtel Money app, through USSD by dialling *400#; or via a simple IVR
by dialling 400. Both the USSD & IVR options are available in Hindi and English
language and work on simple feature phones as well. Non-Airtel customers can also
access Airtel Bank’s services by dialling 8800688006.

ANALYSIS & INTERPRETATION

4.1 Introduction

Based on my personal experience, i can conclude that payments bank account

come handy for monthly online payments. For example, if i earn Rs 1 Lac then i
spend approx 30k online towards grocery, electricity bill, other utility bills,
shopping, mobile recharge, DTH recharge etc. Therefore, i transfer Rs 30,000
from my current account to my payments bank account. I use this account for all
my monthly online spends. The best part is that i am earning an interest of 7.25%
till i actually spend the amount or actual debit from the account.

In my case, i keep a balance of max limit i.e. Rs 1 Lac in payments bank account
as the risk-free return of 7.25% will be thing of past in some time. Recently SBI
quoted that existing interest rate of 7.25% on Fixed Deposits will come down in
near future :)

4.2 Analysis benefits of payment Bank

1. Zero Balance Account:

In my opinion, it is a huge benefit especially if you are not using the account for
investments/savings purpose. At the same time, it is not beneficial for the account
holder to maintain low balance as he will lose on the higher interest rate. We will
discuss it in detail in point no 2.

Now why zero balance account is beneficial. Firstly, there is no commitment from
the account holder to maintain balance especially if you are using the account for
regular expenses. You need not keep track of minimum threshold. For example,
one of my relatives has almost 10 savings accounts. Therefore, a minimum
balance of Rs 10,000 in each account means Rs 1 Lac is locked. Secondly, there
is NO penalty for non-maintenance of balance in payments bank account.

2. Higher Interest Rate:

The cost savings due to operational efficiency is passed to the customer by way
of higher interest rate. For example, Airtel Payments Bank is not planning to open
any branch of the bank. The existing retail outlets or airtel stores will act as
Banking points. Thus the benefit of savings in infrastructure cost is passed to the
customer and interest rate offered is 7.25% in a savings payments bank account.
 It is same as existing fixed deposits rate and highest savings account interest
rate among all the banks. Secondly, Airtel Payments Bank decided to issue virtual
debit card instead of a physical debit card. It will further reduce the cost. In my
opinion, the rate of interest will always remain relatively high to attract deposits

3. Convenience:

In my opinion, the payments bank with wide distribution network is most likely to
succeed. Currently, out of 8 license holders, 4 are telecom service providers and
one is a mobile wallet. These telecom service providers & mobile wallet will
convert retail outlets to banking points. Therefore, the payments bank with wider
distribution channel is more likely to succeed compared to others. As per recent
news reports, Airtel payments bank will have 7.5 Lac Banking Points in near
future.

I am not expecting all 8 license holders to start operations. The 3 license holders
have already surrendered their license among 11 original allottees. In my opinion,
only the license holder with access to distribution channel will start operations.

To summarize, banking points (retail outlets) will be sort of mini-bank branches

near you. It is not feasible for the normal bank to open 7.5 Lac branches but
payments bank account holder may find large no of banking points in the vicinity
even though they will provide only basic banking services. In short, you can open
an account, deposit cash or withdraw cash at these banking points.

Another important point is that these retail outlets aka banking points are normally
open all 365 days from 8 AM to 10 PM. Therefore, timing is another convenience
factor. You can bank anytime :).

4. Safe and Secure

The experts are of the opinion that mobile transactions are not safe and secure.
I agree with them but only if you are transacting through a mobile browser.
Alternatively, if you have malicious app or software installed on your mobile then
your transactions are unsafe. I look payments bank account differently. I take the
example of one of a senior citizen who stays in our apartment. He has only one
bank account and he uses the same for all online transactions i.e. net banking or
debit card transactions. Though in India online transactions are safer & secure
compared to any other part of the world. The 2-factor authentication is mandatory
for all cashless transactions. Still, the risk is always perceived and unknown.
Therefore, he exposes his lifelong savings of Rs 50 Lac at risk.

I suggested him to open payments bank account and make all the online
payments through payments bank account. The maximum account balance
allowed under payments bank account is Rs 1 Lac. He opened an account and
he told that he maintains an average balance of Rs 20,000 i.e. monthly online
spend. In other words, at given point of time, only Rs 20,000 is at risk instead of
Rs 50 Lac :).

In my opinion, all mobile transactions require 4-factor authentication. At least it is the

case with me. Now you must be wondering how?

A. I keep my mobile phone locked. These days almost all the mid-range smartphones
come with a fingerprint scanner. Therefore, password/pattern/PIN/fingerprint scanner
is 1st level authentication.
B. You can lock the App (Another common feature). Therefore, you need to enter pin
or draw the pattern to open the app & it is 2nd level authentication

C. You need 4 digit MPIN to access your bank account. It is 3rd level authentication.

D. To complete the transaction, you need OTP that you receive through SMS on your
registered mobile no. It is 4th level authentication.

I hope you agree with me that mobile transaction is more safe and secure :). Also, the
lesser amount is at risk as we discussed earlier.

5. Account No is same as Mobile No

I opened my first bank almost 20 years back in 1996 (I still remember the branch in
my home town). From that day i always hated the long bank account numbers difficult
to remember. Though in 1996 my bank account no was just 4 digits :). Today it is
minimum 10 digits. My mobile no is 15 years old. I took it in the year 2001. Honestly, i
always wondered why my mobile no cannot be my savings account no. Easy to
remember for everyone to deposit money in my savings account :).

I wish I could have asked something else from god. Today, my mobile no is my
payments bank account no. Post-MNP people prefer to retain the same mobile no and
this mobile no can be your payments bank account no. Though many of you might not
find this as an important benefit but imagine the large population in rural and semi-
urban areas. In my opinion, this feature will make banking convenient for people in the
hinterland especially small merchants, traders etc. The reason being, they may find
account no’s and other details difficult to remember. From an individual perspective, I
was spared from remembering one more account no :).

6. Cashback and Discount Offers

As I mentioned earlier that payments bank account provide best of both the worlds.
Similar to mobile wallets it also provides cashback offers and discount offers similar to
mobile wallets. Last week i received a cashback of Rs 150 on a purchase of movie
tickets from a particular movie ticketing website. I paid the amount from my payments
bank account. Besides that currently, there is a cashback offer on first two transactions
during the month.

7. Additional Benefits

You can always expect payments bank account to offer additional benefits. These
benefits are over and above cashback and discount offers. For example, Airtel
payments bank account holder is offered free accidental insurance cover of Rs 1 Lac.
Besides that Airtel is offering talk time equivalent to the every rupee deposited in
payments bank account only for the first deposit. The only catch is that free talk time
is applicable only for Airtel to Airtel Calls with a validity of 30 days.

4.3 Analysis Payment banks are accessible to certain dos and

don’ts
Does:
1. Accept demand deposits from individuals, small business or other similar
entities.
 2. Take cash deposits to the limit of Rs. 1 lakh (this might be raised later by the
RBI depending upon the performance of the bank).
3. Set up branches, ATMs and correspondents
4. Issue debit cards and offer internet banking facility
5. Sell mutual funds, insurance and pension products
6. Accept remittance to be sent to multiple banks and receive remittances from
them too.
7. Undertake utility bill payments
Doesn’t:
 Lend loans
 Issue credit cards
 Accept NRI deposits
 Set up subsidiaries for non-banking financial services.
 Offer other financial/non-financial services of promoters

4.4 Payment banks will affect existing banking sector

The payments banks will help reach out to the people in rural areas where banking
system is not very effective. This way they will bring the unbanked masses under
the ambit of general banking. They will also ensure that more money comes into
the banking system and hence will expedite financial inclusion. They will also be
helpful in making the poor more financially literate.
With the advent of these new set of banks the existing top-notch banks will not be
affected much as payment banks will operate in specific areas only. Also, the
major banks in India could use these banks to improve their reach in every part of
the country, as the payment banks can also function as business correspondents.
In fact, some of the major banks have already tied up with the licence holders. For
instance, the State Bank of India (SBI) has tied up with RIL’s proposed payment
bank and will have about 30% share in the same. Similarly Aditya Birla Nuvo
Limited has tied up with Idea Cellular which will have 49% share in the joint
venture. Kotak Mahindra Bank will have 19.9% stake in Bharti Airtel’s bank.
Tech Mahindra is likely to join hands with Mahindra Finance for payment banks.
Norwegian telecom giant Telenor, Dilip Shanghvi and infra financier IDFC have
entered into a deal for payment banks.

4.5 Finds and Suggestions:

Payment banks can accept deposits restricted to Rs. 1 lakh per customer, and are
allowed to pay customers interest on the money that is being deposited. They can be
used for either current accounts or savings accounts. For companies that have operated
as mobile wallets (which are a type of Pre-Paid Instrument aka PPI), this is a big step
forward as it raises the funds limit, and allows interest to be paid on the deposits,
making it more attractive for users to store their money with a Paytm or m-Pesa.

Unlike a regular bank however, a payment bank can't loan money to people, or issue
credit cards. Also, the payment banks are only allowed to invest the money customers
deposit into government securities.
 While the payment banks can't issue credit cards, they can issue ATM and debit cards.
Since many of the 11 new license holders already operate mobile wallets, the ability to
issue an ATM card helps close the loop and makes it easier to convert virtual money
into cash, and vice versa.

This is also very important when considered from the perspective of financial inclusion,
as someone could now fill cash into a m-Commerce bank account from Delhi, and a
relative in a small town who holds the debit card could withdraw cash from any ATM
frictionless, or even in a more rural location, through any point of sale terminal with a
"business correspondent", essentially an authorised partner for the bank. It's these
partners - and theoretically the small convenience shop in a village that sells mobile
recharges could be one of them - that will serve the purpose of bank branches, though
the payment banks can set up branches if they want.

Payment banks can be integrated with your savings bank accounts via IMPS and NEFT
transfers. As already mentioned, the payment banks ATM or debit cards will also work
on all banks' machines. Payment banks can't accept NRI deposits, which makes sense
considering the goal of financial inclusion.

As I mentioned earlier that payments bank account provide best of both the worlds.
Similar to mobile wallets it also provides cashback offers and discount offers similar to
mobile wallets. Last week i received a cashback of Rs 150 on a purchase of movie
tickets from a particular movie ticketing website. I paid the amount from my payments
bank account. Besides that currently, there is a cashback offer on first two transactions
during the month.

4.6 Summary

The experts are of the opinion that mobile transactions are not safe and secure.
I agree with them but only if you are transacting through a mobile browser.
Alternatively, if you have malicious app or software installed on your mobile then
your transactions are unsafe. I look payments bank account differently. I take the
example of one of a senior citizen who stays in our apartment. He has only one
bank account and he uses the same for all online transactions i.e. net banking or
debit card transactions. Though in India online transactions are safer & secure
compared to any other part of the world. The 2-factor authentication is mandatory
for all cashless transactions. Still, the risk is always perceived and unknown.
Therefore, he exposes his lifelong savings of Rs 50 Lac at risk.

I suggested him to open payments bank account and make all the online
payments through payments bank account. The maximum account balance
allowed under payments bank account is Rs 1 Lac. He opened an account and
he told that he maintains an average balance of Rs 20,000 i.e. monthly online
spend. In other words, at given point of time, only Rs 20,000 is at risk instead of
Rs 50 Lac :).