After a major setback due to pandemic, the country’s economy has slowed down, in such a situation, the Government of India and RBI are making every effort to bring the country’s economy back on track. At the same time, Financial Inclusion remains a concern in our country. Our central bank is making every effort to ensure financial inclusion of all and payment bank is one such method, which was created to provide payment/remittance service to migrant labours employees, who are in small business. But the utility of these banks is not limited to the vulnerable section alone. There are several other benefits for every section of society. So, it becomes important to understand about these banks and how are they different from scheduled commercial banks.
What is a Payment Bank?
A payment bank can be defined as differentiated banks like commercial banks in which one can have a current and savings account. These banks follow the guidelines laid down by the Reserve Bank Of India on 24th November 2014. Payment banks cannot issue credit cards, unlike other commercial banks. Moreover, these banks are not allowed to issue a loan. Earlier there were 11 payment banks but at present, there are only 6 payment banks.
What are the features of a Payment Bank?
- Unlike commercial banks, there is a limit on the acceptance of demand deposits. Payments Bank account can have maximum of Rupees 2 lakh at a time. Beyond this, one cannot deposit money in it.
- Payments Bank can issuance of ATM/Debit Card. However, payment banks cannot issue credit cards like commercial banks.
- Moreover, Payment banks have no right to issue loans or provide lending services to the customers as regular banks do.
- Payments bank facilities can only be availed by Indians residing in India, which means that people of Indian origin residing abroad cannot deposit their money in payment banks.
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- Payments banks provide the facility to make individual payments and receive cross-border remittances on current accounts.
- Like commercial banks, payments banks have to maintain CRR. In addition to the amounts to be kept as CRR with the Reserve Bank on its external demand and fixed liabilities, it will have to maintain a minimum of 75 per cent of the desired amount of Statutory Liquidity Ratio (SLR) in Government securities/ Government Bills with a maturity of one year.
- Payments banks are not permitted to undertake non-banking financial service activities.
- With prior permission from RBI, Payments Bank can work as a partner with other commercial banks and also sell mutual funds, pension products, and insurance products.
- Payments banks are obligated to use the word “Payments Bank” in their name to stand out from other banks.
- Payments banks are allowed to provide internet banking and mobile banking facility to their customers like commercial banks.
Why you should use one?
From the above features, you must have understood how payments banks stand apart from regular banks. Although these banks are not for high-value monetary transactions or to get credit or a locker facility, you may still use them as your auxiliary account. There are several advantages for which you can avail services of these banks.
- You can use them as your auxiliary expense account, in which you can transfer money regularly for trivial expenses. This will help you in monitoring your petty expenses.
- You can use these accounts for online transactions. So, you will not have to give the details of your main account. In case of online Fraud, which you should not fall into, using these accounts will save you from a major loss.
- You can also use these accounts for your children as their expense account. You will not have to hand over your ATM or credit card to your child. You can simply give Payments bank ATM card to your child.
- Moreover, some of these banks offer better interest rates on Savings account than regular banks.
Also read: What Is Central Bank Digital currency? Why It Is Needed? How Is It Different From Cryptocurrency?