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  • 19 January, 2022

  • 7 Min Read

Payment Banks and Small Finance Banks

Payment Banks

  1. Provides small savings and current accounts < 1 lakh, Mutual Funds, Insurance products, remittances to workers.
  2. They are differentiated or restricted banks.
  3. It was announced in Union Budget 2014-2015.
  4. It was based on the recommendations of the Nachiket Mor Committee on Financial Inclusion.
  5. They cannot lend and cannot set up subsidiaries to undertake Non-banking Financial services (NBFS) (lease, hire purchase).
  6. They are bound to meet CRR and 75% SLR and 25% in current and time/fixed deposits with other SCBs.
  7. They can become a Banking Correspondent for another bank for credit and services which it cannot offer.
  8. They are proposed to be registered as a public limited company under the Companies Act, 2013 and licensed under Section 22 of Banking Regulation Act, 1949.

Eligibility for Payment Banks

  1. Minimum paid-up capital shall be Rs. 100 crore of which the promoter's contribution would be a minimum of 40% for the 1st 5 years.
  2. Who may apply? non-bank PPI issuers under Payment and Settlement Act, 2007; NBFCs, corporate BC, mobile phone companies, supermarkets chains, companies etc.
  3. Indian Post (in 2015) is launching India Post Payments Bank (IPPB) as a Public Limited Company with 100% equity.

India Post Payment Bank

  • India Post Payments Bank (IPPB) has been established under the Department of Posts, Ministry of Communication with 100% equity owned by the Government of India.
  • IPPB was launched by the Hon’ble Prime Minister Shri Narendra Modi on September 1, 2018.

  • The bank has been set up with the vision to build the most accessible, a?affordable and trusted bank for the common man in India.
  • The fundamental mandate of IPPB is to remove barriers for the unbanked and under-banked and reach the last mile leveraging the postal network.
  • IPPB’s reach and its operating model is built on the key pillars of India Stack - enabling Paperless, Cashless and Presence-less banking in a simple and secure manner at the customers' doorstep, through a CBS-integrated smartphone and biometric device.
  • Leveraging frugal innovation and with a high focus on ease of banking for the masses, IPPB delivers simple and a?ordable banking solutions through intuitive interfaces available in 13 languages.
  • IPPB is committed to providing a ?llip to a less-cash economy and contributing to the vision of Digital India. India will prosper when every citizen will have equal opportunity to become ?nancially secure and empowered.
  • Our motto stands true - Every customer is important; every transaction is signi?cant, and every deposit is valuable.

Small Finance Banks

  1. SFB is a private financial institution. They can accept deposits & lending to underserved and unserved sections including small businesses, MSFs, micro and small industries and unorganised sector entities. The target group of SFBs are similar to that of Local Area Banks (LABs).
  2. SFBs are full-fledged banks in contrast to payments banks.
  3. They were created in Union Budget 2014-2015.
  4. It was based on recommendations of Raghuram Rajan Committee on Financial Sector Reforms in 2009.
  5. However, it cannot set up subsidiaries to undertake NBFS activities.
  6. They are subject to CRR and SLR. Foreign Investment is permitted as in the case of other private sector commercial banks.
  7. But they can lend. At least 50 % of its loan portfolio should constitute loans of up to Rs. 25 lakh. They do not have any restrictions in the area of operations, unlike RRBs or Local Area Banks.

Eligibility for Small Finance Banks

  1. Minimum capital is 100 crore with an initial contribution of 40% from promoters which over a period of 12 years, is to be reduced to 26%.
  2. When the net worth is 500 crores, a listing of shares will be mandatory within 3 years of that.
  3. At least 25% of its branches shall be in unbanked rural centres.
  4. Resident individuals/ professionals with 10 years of experience in banking are eligible to set up small finance banks. Existing NBFCs, Microfinance institutions (MFI) and Local Area Banks (LABs) can opt for conversion of SFB. Ex. Utkarsh SFB, Suryoday SFB etc.

Source: PIB

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