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Are Payments Banks safe investment option?

Payments Banks are a new category of banks which cannot issue credit and loans. Thus these banks cannot lend. Scope of activities is to accept demand deposits and provision of payments and remittance services. The primary objective of setting up of payments banks is to further financial inclusion by providing:

(i) small savings accounts and

(ii) payments/ remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments/ remittance services in a secured technology-driven environment.

These banks were set up with the objective of facilitating low cost transactions. Also remittances have both macro-economic benefits for the region receiving them as well as micro-economic benefits for the recipients. Higher transaction costs of making remittances diminish these benefits.

These banks are governed by the Banking Regulation Act, 1935 and licensed under Section 22 of the same Act. The banks are Public Limited Company under Companies Act, 2013.

Payments Banks

There are 6 payment banks in India

  • Airtel Payments Bank
  • India Post Payments Bank
  • Fino Payments Bank
  • Jio Payments Bank
  • Paytm Payments Bank
  • NSDL Payments Bank

Scope of activities of Payment Banks

  • Issuance of ATM/ Debit Cards but credit cards.
  • Internet banking.
  • Acceptance of demand deposits, i.e., current deposits, and savings bank deposits from individuals, small businesses and other entities, as permitted.
  • Payments and remittance services through various channels including branches, Automated Teller Machines (ATMs), Business Correspondents (BCs) and mobile banking.
  • Functioning as Business Correspondent (BC) of another bank. 
  • The payments bank may undertake utility bill payments etc. on behalf of its customers and general public.

Are payments banks safe to invest in?

The payments bank model is unviable due to restrictions from lending and rules for cash reserve ratio and statutory liquidity ratio which leaves very little space for generating income for the payment banks.

Payment banks can only accept savings and current deposits of up to ₹2 lakh per customer but not lend. Therefore, these banks do not earn much interest. Lack of incentives for the agents to involve themselves in these activities. Lack of infrastructure and access to operational resources. Technological hurdles.

Lastly, the reason for payments banks choosing to shut shops could be with the lack of proper awareness about it amongst people, and whatever little awareness there is has not been able to translate people into customers.

Individuals & small businesses choose Quicko to pay taxes, file returns & stay tax compliant.

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