<div><em><strong>Sumit Sharma</strong> says all credit to RBI and government in their determination to serve those without banking access</em></div><div> </div><div>By granting 11 licenses for payment banks, the Reserve Bank of India put in yet another building block in its effort to reach banking services to unbanked and to the remotest parts of the country, and potentially increase use of digital technology and mobile services.</div><div> </div><div>The payment banks will be an add-on to the banks rather than competitors, said RBI Governor Raghuram Rajan hitting the nail on the head in an interaction with SBI chairman Arundhati Bhattacharya at a banking conference this morning. Payments banks will act as feeders to universal banks. The payments banks have been permitted to do only a few limited functions that are much fewer than universal banks.</div><div> </div><div>The main purpose for setting up payment banks is to further efforts of financial inclusion by opening small savings accounts, offer payment and remittance services to migrant labor workforce as also to low income households small businesses and others unorganized entities. The 11 payment banks, which have to start functioning within 18 months, will also help reduce the need to hold physical cash and the risks associated with keeping cash under the pillows for safety.</div><div> </div><div>In a country that has less than half of its population with access to basic banking services, and less than 100,000 bank branches in a country with 630,000 villages, towns and cities, the government has been making a variety of efforts to reach banking services to as many as possible.</div><div> </div><div>Following lukewarm success of business correspondents and a less than sanguine performance of micro finance institutions, the authorities seem to be banking on payments banks and use of mobile phones to further the use of banking services especially with almost 17 crore new accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY).</div><div> </div><div>Universal commercial banks are already taking rapid strides in using technology to provide banking services to even non-customers through e-wallets at lightning speed and little risk. The day is not too far when physical cash will no longer be necessary for making payments. The payments banks will rope in those missing out accessing banking services.</div><div> </div><div>The companies and partnerships selected from among 41 applicants, include Aditya Birla Nuvo Ltd, Airtel M Commerce Services, Cholamandalam Distribution Services Ltd, Department of Posts, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shantilal Shanghavi, Vijay Shekhar Sharma, Tech Mahindra Ltd and Vodafone m-pesa Ltd. They all have sound experience and credibility in conducting the businesses. Yet, some apprehensions have been expressed on profitability potential of payments banks.</div><div> </div><div>A typical payments bank can accept deposits, and hold balance of maximum of Rs 100,000 per individual customer, and help in making payments and remittance services. They are not permitted to issue debit or ATM cards to facilitate banking services beyond banking hours. While they are not permitted to issue credit cards to keep any risk to the minimum, they can still offer basic mutual fund and insurance products to depositors. So, the basic purpose of payment banks is to help small depositor in an area with low penetration of banking services, as also migrant labour with limited KYC documents. It will be some time before one will be able to pass judgment on its success. Yet, all credit to RBI and government in its determination to reach the unbanked population.</div><div> </div><div> </div>
