Payment Banks

The Reserve Bank of India (RBI) introduced the concept of payment banks in 2015. The idea was approved by a committee led by Nachiket Mor after studying the saving habits of low-income Indians. RBI then established rules for these banks and invited applications from interested businesses. 

An advisory group evaluated 41 applications and approved 11 of them. These entities had 18 months to set up their banking processes before receiving a full licence from RBI, during which they couldn't conduct banking activities. 

Payment banks functionality

Payment banks don't issue credit cards or loans. They help small businesses, low-income households, migrant labourers, and unorganised sectors to access banking services. Services offered by payment banks include: 

• Remittance service
• Automated Teller Machine Service
• Debit cards
• Net banking service
• Bill payments service
• Mobile banking service
• Third-party fund transfer

Objectives of payment banks

The primary goal of payment banks is to provide financial inclusion to low-income households, migrant labour, small businesses, and the unorganised sector. They aim to offer affordable savings accounts to those hesitant due to high maintenance fees. 

Significance of payment banks in India

The lower-income class in India often faces difficulties with banking and financial transactions. Payment banks ease this issue by allowing clients to have savings accounts without the costs associated with traditional banks. They also facilitate smoother money transfers and offer higher interest rates, encouraging the lower-income class to save money and join the banking community.