What is a Payments Bank?

About Payments Bank:

• A payments bank is like any other bank but operates on a smaller scalewithout involving any credit risk. 
• It was set up based on the recommendations of the Nachiket Mor Committee.
• Objective: To advance financial inclusion by offering banking and financial services to the unbanked and underbanked areas, helping the migrant labour force, low-income households, small entrepreneurs, etc.
• It is registered as a public limited company under the Companies Act 2013 and licensed under Section 22 of the Banking Regulation Act 1949.
• It is governed by a host of legislation, such as the Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, etc.
• Features:
• They are differentiated, and not universal banks.
• These operate on a smaller scale.
• The minimum paid-up equity capital for payments banks shall be 100 crores.
• The minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall be at least 40% for the first five years from the commencement of its business.
• Activities that can be performed:
• It can take deposits up to Rs. 2,00,000. It can accept demand depositsin the form of savings and current accounts.
• The money received as depositscan be invested in secure government securities only in the form of a Statutory Liquidity Ratio (SLR). This must amount to 75% of the demand deposit balance.
• The remaining 25% is to be placed as time deposits with other scheduled commercial banks.
• It can offer remittance services, mobile payments/transfers/purchases, and other banking services like ATM/debit cards, net banking, and third-party fund transfers.
• It can become a banking correspondent (BC) of another bank for credit and other services which it cannot offer.
• Activities that can be performed:
• It cannot issue loans and credit cards.
• It cannot accept time deposits or NRI deposits.
• It cannot set up subsidiaries to undertake non-banking financial activities.