Payment Banks: A Step towards Financial Inclusion

Transcription

1 International Journal of Researh (IJR) Available at Payment Banks: A Step towards Finanial Inlusion Dr Vishakha Kutumbale 1 & Mehraj u din Bhat 2 1 Professor Shool of Eonomis, Devi Ahilya Vishwavidyalaya, Indore, (M.P). 2 Researh Student Shool of Eonomis, Devi Ahilya Vishwavidyalaya, Indore, (M.P). Abstrat For the past several years, there have been a series of poliy responses to the hanging landsape of Finanial Inlusion and Payments globally. The proliferation of non-bank partiipants in failitating payment servies, suh as business orrespondents, third-party servie providers (who have reated distribution networks to servie diverse end user needs) and Mobile Network Operators has generated different approahes to delivering finanial servies aess to hitherto un served and under-served populations. In partiular, there have been a host of different innovations in Mobile Money in sub-saharan Afria, in South East Asia as well as in the South Asian neighbourhood. In India, the Reserve Bank of India (RBI) has espoused a Bank-led approah to payments and inlusive finanial servies. The Business Correspondent (BC) model introdued in 2006 has thus far been the hief instrument of outreah. It is estimated that urrently there are over 200,000 BC agents2aross India. In addition, Prepaid Payment Issuers (PPI) lienses were issued to ater to a host of different transation use ases The guidelines on Payment Banks issued by the RBI is a poliy step towards reating differentiated banking strutures to respond to the diffiulties faed by ertain underserved segments of the population in aessing formal finanial servies as well as to promote a less-ash eonomy through digital payments. It is also a response to address longstanding onerns of BCs as well as PPIs. Owing to the high ost of ash transations, the RBI has been advoating a movement towards a less-ash eonomy through institutions that an failitate the adoption of digital money that an manifest itself through smart ards, mobile phones or other tehnologies that offer a seure aess to a stored value aount. The present study is based on the role of the payment banks in the finanial inlusion and RBI s Ist draft for the payment banks. Keywords:- Payment Banks ; Finanial Inlusion. Introdution India has struggled with finanial inlusion; with just 400 million of the 1.2 billion population have bank aounts and with getting urban entri banks to inlude the urban poor and the rural population. In India, RBI has initiated several measures to ahieve greater finanial inlusion, suh as failitating no-frills (PMJDY) aounts and General Credit Cards (GCCs) for small deposits and redit. Reently Prime Minister Narendra Modi has announed the Jan Dhan Yojana whih is a National Mission for Finanial Inlusion. This National Mission has an ambitious objetive of overing all households in the ountry with banking failities and having a bank aount for eah household. Every aount holder is to provide with Rupay debit ards with aess to mobile banking and aidental insurane. The Reserve Bank of India (RBI), in its attempt to give impetus to finanial inlusion Available online: P a g e 991

2 International Journal of Researh (IJR) Available at in the ountry, has announed a new ategory of nihe or differentiated bank. Two new types of banking systems have been introdued under this ategory, namely: Payment Banks and Small Banks. While small banks will provide all sorts of banking servies in a limited operational area, payment banks will provide a limited range of banking produts but will have a greater aessibility, espeially in the rural areas. Reserve bank of India (RBI) Statistis suggests that more than 40% of India s 1.2 billion population has little or no aess to formal banking servies. And this is a onservative estimate. Needless to say, for an eonomy flourishing at a steady rate of 7.5% to 8.0% per annum, this limited aess to finanial servies is ating as a onstraint to growth. Finanial inlusion not only assists a nation s growth but also inreases employment opportunities and empowers the poor. Payment banks are ommerial banks with a low starting apital and are generally targeted to bring the finanial inlusion in the ountry. Payments banks will offer most of the banking servies exept loans and redit ard produts to retail ustomers. Customers an deposit money up to Rs 1 lakh in these banks, transfer money, make payments and buy finanial produts suh as insurane and mutual funds. Payment Banks is based on the onept of PPI that is to load ash into mobile and use it to do various transations suh as transferring money using your mobile to another mobile phone holder or to another bank aount or to point-of-sale terminals at large retailer and take out ash. Need for Payment Banks erupted beause India has around 94 rore mobile subsribers whih is approx. 75% of the population of 125 rore but if we see the number of bank aounts this figure omes down to 60 rore that is around 50% of the population. Most of the unbanked people lives in the rural area and are poor people or small businessman. So from finanial inlusion point of view, this model (PPI) seems to be sound onept. It is an attempt by the RBI and government of India to inrease the finanial inlusion with the help of Payment banks in the ountry. Currently 11 entities have been approved for the payment banks and they an establish their banks in various part of the ountry. These banks are generally meant to produe the loan and money requirement of the small farmers, migrant labours, artisans, low inome households, small businesses, other unorganised setor entities and users, who do not get aess of the finanial instruments in most of the ommerial banks. The Reserve Bank of India (RBI) has hosen just 11 out of 41 appliants to set up payments banks in the ountry. The eleven names inlude 1 Aditya Birla Nuvo 2 Airtel M Commere Servies 3 Cholamandalam Distribution Servies 4 Department of Posts 5 FINO PayTeh Available online: P a g e 992

3 International Journal of Researh (IJR) Available at 6 National Seurities Depository 7 Reliane Industries 8 Dilip Shanghvi, (founder of Sun Pharmaeutials) 9 Vijay Shekhar Sharma, (CEO of Paytm) 10 Teh Mahindra 11 Vodafone M-Pesa From the above entities some of them have already started the mobile wallet and payment system. For instane, both Airtel and Vodafone have fund transfer servies. Airtel already partly undertakes the funtions of a payments bank by offering fund transfer servies under Airtel money that has over 1.7 million users. Vodafone too has a similar offering. Reliane industries limited (RIL) has a tie-up with State Bank of India (SBI) for the payments bank roll-out. The partnership between India s largest ommerial bank and largest orporate entity omes with huge promises and will be keenly wathed. The announement and approval of 11 payment banks by the Reserve Bank of India (RBI) is expeted to pave the way for finanial inlusion through a ombination of branhes and digital platforms. It goes without saying that this step was very muh needed more so beause the large unbanked areas had to be overed and save the eonomially weaker setions from unsrupulous persons and hit fund sams. While the private setor banks may not be in any way affeted beause of their strong tehnology base, the small and medium publi setor banks may feel an impat in the realm of deposit growth, speially in rural and semi-urban areas. Added to this is the huge pile of bad debts, whih annot be takled effetively. This along with inreasing osts, their profitability and ability to grow has been badly affeted. While the private setor banks may not be in any way affeted beause of their strong tehnology base, the small and medium publi setor banks may feel an impat in the realm of deposit growth, speially in rural and semiurban areas. Added to this is the huge pile of bad debts, whih annot be takled effetively. This along with inreasing osts, their profitability and ability to grow has been badly affeted. The liense for India Post will greatly help in spreading out to the villages with their huge network, spanning 139,000 post offies. It is expeted that these have the wherewithal and apaity to do effetive business in rural areas. Moreover, sine payment banks are allowed to take deposits up to Rs 1 lakh, there would obviously be a tendeny to shift the post offies from publi setor banks. Thus, India post is expeted to get huge ustomers in the not-too-distant future. The new banks may ompletely revolutionise the finanial outlook in rural India. With strit sreening proedures, small banks projet would let serious players like Sahaj, having one of the largest IT onneted rural networks; arry forth its benefits aross the ountry. Available online: P a g e 993

4 International Journal of Researh (IJR) Available at Aording to the 2015 Brookings Finanial and Digital Inlusion Projet report, India ranks nine among 21 ountries in finanial and digital inlusion efforts - trailing after ountries like Kenya, South Afria and Brazil. That means the ountry has a long way to go before its banking system suessfully reahes most of the population. However, it is heartening to see the several measures that are being put in plae to reah that target. Features of the Payment banks:- 1) Payment banks will ater to migrant labour workfore, low inome households, small businesses, other unorganized setor entities and other users. 2) Payments banks an take deposits. Deposits up to only Rs 1 lakh per person are allowed urrently. They an issue ATM or debit ards. 3) Payments banks annot give loans or issue redit ards. 4) Customers who do not have the means to maintain minimum balane will be welomed into payments banks as revenue will be earned through transation harges and not on the spread of interest between deposits and loans. 5) Payments banks an sell finanial produts like mutual fund units and insurane poliies. 6) Money olleted from depositors an be invested either in government bonds or an be deposited with other ommerial banks. 7) The operations of the payment banks will be fully networked and tehnology driven from the beginning. 8) The payment banks will also have highpowered ustomer are ell to handle ustomer omplaints. 9) The minimum paid-up equity apital for payments banks is Rs 100 rore. This means owners of payments banks have to put in a minimum of Rs 100 rore in return for equity in the ompany 10) Payment Banks will harge a fee as ommission. This will be the sole earning for the banks. 11) Payment bank will also have to maintain CRR (Cash reserve ratio) just like other Sheduled ommerial banks (SBI, PNB, BoB, Dena, ICICI et). Review of literature The onept of payment bank is new so there is not any researh paper regarding it. So I have read the artiles of the prominent leaders from the newspapers and other soial Medias. Arun Jaitley,Finane Minister said that payment banks is an important step for the expansion of rural banking system."payment bank will ensure more money omes into banking system, Payments banks will hange the banking habits of people, it will hange the way they think, it will hange the way they keep the money, where they keep their money, it will hange the way they pay, Using banks for all transations, small and middle, will beome a habit of the people. More and more outside of the regular eonomy will get into the eonomy. Payments banks will hange banking habits in the ountry and at as a game hanger for the eonomy. Available online: P a g e 994

5 International Journal of Researh (IJR) Available at Abhishek Bhattaharya SBI Chairperson, assoiate diretor at India Ratings & Researh, a Fith Group ompany. "The payments banks will offer the reah and the regular banks an offer their redit produt through these additional hannels, It is a good way to deepen finanial inlusion in a ountry where mobile phone subsribers outnumber bank aount holders," Arundhati Bhattaharya, Chairperson, SBI: We are pleased to note that RBI has granted payments bank liene to Reliane Industries in whih SBI has proposed a 30 per ent stake. This partnership brings together the ombined strengths of two of India s Fortune 500 orporations ommitted to making a transformative impat on India s finanial inlusion landsape. We see this liene as an opportunity to promote finanial inlusion by providing banking and transation servies to unbanked, underbanked and small businesses. Vijay Shekhar Sharma, Founder and CEO, Paytm: This is indeed a great moment for us. We have managed to signifiantly redue the ash usage in the eonomy. With this nod from the RBI we will be able to further drive our overall ommitment to finanial inlusion for the unbanked segment, modernise payment systems and build more trust for our servies. Shaswat Sharma says that Payment banks will appoint their merhants and users would be able to pay them eletronially. This means, you ould soon be using your mobile to transfer funds to a retail store or at a restaurant. You ould also be making payments to the milk man and domesti help through your mobile rather than going to the bank, withdrawing ash and then handing it over to them,'' he says. Servies like paying utility bills, booking train tikets and fund transfers ould see an improvement as banks will offer innovations. Sunil Sood, Vodafone CEO. Said "The payment bank liene will enable us to build on this further and offer a more omprehensive portfolio of banking and finanial produts and servies, aelerating India's journey into a ashless eonomy, We want to provide bank aounts to people in the villages, to bring them into the digital eonomy, to send money, buy goods and servies, through the digital eonomy." The new payment banks will also make people less dependent on ash, even for small sums, and sine a mobile wallet ould be a bank aount soon, this move ould, over time, have a big impat on m-ommere.. they will help bring millions of unbanked itizens into the banking setor Chanda Kohhar said the payments bank will play a omplimentary role in the banking system and the universal banks like ICICI Bank stand to gain from their entry. "The entry of new players will enhane the finanial eosystem and will also make existing banks tehnology savvy and get them to ome out with new produts," she said. She said all the servies whih would be undertaken by the payments bank are already done by the universal banks Dipak Gupta, Joint Managing Diretor, Kotak Mahindra Bank Limited said, We are delighted that Airtel M Commere Servies Ltd., where we have agreed to invest 19.9%, has reeived inpriniple approval from Reserve Bank of India for setting up a Payment Bank. Payment Banks will play a ruial role in fulfilling India s finanial inlusion agenda, Available online: P a g e 995

6 International Journal of Researh (IJR) Available at and have the potential to hange the paradigms of retail banking espeially in the payments spae. They will also promote the habit of savings by driving ashless transations. We are truly exited to partiipate in this opportunity. Objetives of the study:- 1) To study the RBI draft guidelines for the payment banks in India. 2) To understand role of payment bank in finanial inlusion in India. Reserve Bank of India Draft Guidelines for Liensing of Payments Banks The Reserve Bank of India (RBI) issues lienes to entities to arry on the business of banking and other business in whih banking ompanies may engage, as defined and desribed in Setions 5 (b) and 6 (1) (a) to (o) of the Banking Regulation At, 1949, respetively. RBI ame out with a set of guidelines for liensing of new banks in the private setor was in February The proess of liensing ulminated with the announement by the RBI vide its Press Release dated April 2, 2014, that it would grant in priniple approval to two appliants who would set up new banks in the private setor within a period of 18 months. While announing the deision to grant in-priniple approval to the two appliants, the RBI indiated in its above Press Release that going forward, RBI intends to use the learning experiene from this liensing exerise to revise the guidelines appropriately and move to grant lienes more regularly. Further, RBI would work on a poliy of having various ategories of differentiated bank lienes whih will allow a wider pool of entrants into banking. Similarly, the Committee on Comprehensive Finanial Servies for Small Businesses and Low Inome Households (Chairman: Dr. Nahiket Mor) in its report released in January 2014 examined the issues relevant to an ubiquitous payments network and universal aess to savings and reommended, inter alia, that given the diffiulties being faed by the Pre-paid Payment Instruments Issuers (PPI issuers), and the underlying prudential onerns assoiated with this model, the existing and new PPI issuer appliants should instead be required to apply for a Payments Bank liene or beome Business Correspondents (BCs). Taking the above into aount that there is a need for nihe banking in India, and differentiated liensing ould be a desirable step in this diretion, the following guidelines are laid down for liensing of Payments Banks as differentiated or restrited banks. The guidelines for ontinuous authorisation of universal banks will be issued separately. Guidelines of RBI for the setting of Payment Banks 1. Objetives There is a need for transations and savings aounts for the underserved in the population. Also remittanes have both maro-eonomi benefits for the region reeiving them as well as miro-eonomi benefits to the reipients. Higher transation osts of making remittanes diminish these benefits. Therefore, the primary objetive of setting up of Payments Banks will be to further finanial inlusion by providing (i) small savings aounts and (ii) payments / Available online: P a g e 996

7 International Journal of Researh (IJR) Available at remittane servies to migrant labour workfore, low inome households, small businesses, other unorganised setor entities and other users, by enabling high volumelow value transations in deposits and payments / remittane servies in a seured tehnology driven environment. 2. Registration, liensing and regulations The Payments Bank will be registered as a publi limited ompany under the Companies At, 2013, and liensed under Setion 22 of the Banking Regulation At, 1949, with speifi liensing onditions restriting its ativities to aeptane of demand deposits and provision of payments and remittane servies. It will be governed by the provisions of the Banking Regulation At, 1949, Reserve Bank of India At, 1934, Foreign Exhange Management At, 1999, Payment and Settlement Systems At, 2007, other relevant Statutes and Diretives, Prudential Regulations and other Guidelines/Instrutions issued by RBI and other regulators from time to time, inluding the regulations of SEBI regarding publi issues and other guidelines appliable to listed banking ompanies. 3. Eligibility riteria The existing non-bank PPI issuers authorised under the Payment and Settlement Systems At, 2007 (PSS At) and other entities suh as Non-Banking Finane Companies (NBFCs), orporate BCs, mobile telephone ompanies, super-market hains, ompanies, real setor ooperatives and publi setor entities may apply to set up a Payments Bank. Even banks an take equity stake in a Payments Bank to the extent permitted under Setion 19 (2) of the Banking Regulation At, The entities and their Promoters/ Promoter Groups as defined in the SEBI (Issue of Capital & Dislosure Requirements) Regulations, 2009 should be fit and proper in order to be eligible to promote Payments Banks. RBI would assess the fit and proper status of the appliants on the basis of their past reord of sound redentials and integrity; finanial soundness and suessful trak reord of at least 5 years in running their businesses. 4. Deployment of funds The Payments Bank annot undertake lending ativities. Apart from amounts maintained as Cash Reserve Ratio (CRR) with RBI, minimum ash in hand and balanes with a sheduled ommerial bank/rbi required for operational ativities and liquidity management, it will be required to invest all its monies in Government seurities/treasury Bills with maturity up to one year that are reognized by RBI as eligible seurities for maintenane of Statutory Liquidity Ratio (SLR). The Payments Bank will partiipate in the payment and settlement system and will have aess to the inter-bank unollateralised all money market and the ollateralised CBLO market for purposes of temporary liquidity management. 5. Capital requirement Sine the Payments Bank will not be allowed to assume any redit risk, and if its investments are held to maturity, suh investments need not be marked to market and there may not be any need for apital for market risk. However, the Payments Bank will be exposed to operational risk. The Payments Bank will also be required to Available online: P a g e 997

8 International Journal of Researh (IJR) Available at invest heavily in tehnologial infrastruture for its operations. The apital will be utilised for reation of suh fixed assets. Therefore, the minimum paid up voting equity apital of the Payments Bank shall be Rs. 100 rore. Any additional voting equity apital to be brought in will depend on the business plan of the promoters. Further, the Payments Bank should have a net worth of Rs 100 rore at all times. 6. Foreign shareholding The foreign shareholding in the bank would be as per the extant FDI poliy. 7. Voting rights and transfer/aquisition of shares As per Setion 12 (2) of the Banking Regulation At, 1949, the voting rights in private setor banks are apped at 10 per ent, whih an be raised to 26 per ent in a phased manner by the RBI. Further, as per Setion 12B of the At ibid, any aquisition of 5 per ent or more of voting equity shares in a private setor bank will require prior approval of RBI. This will also apply to the Payments Banks. 8. Prudential norms As the Payments Bank will not have loans and advanes in its portfolio, it will not be exposed to redit risk and, the prudential norms and regulations of RBI as appliable to loans and advanes, will therefore, not apply to it. However, the Payments Bank will be exposed to operational risk and should establish a robust operational risk management system. Further, it may fae liquidity risk, and therefore is required to follow RBI s guidelines on liquidity risk management, to the extent appliable. 9. Business plan The appliants for Payments Bank lienes will be required to furnish their business plans and projet reports with their appliations. The business plan will have to address how the bank proposes to ahieve the objetives of setting up of Payments Banks. The business plan submitted by the appliant should be realisti and viable. Preferene will be given to those appliants who propose to set up Payments Banks with aess points primarily in the under banked States / distrits in the North- East, East and Central regions of the ountry. However, to be effetive, the Payments Bank should ensure widespread network of aess points partiularly to remote areas, either through their own branh network or BCs or through networks provided by others. The bank is expeted to adapt tehnologial solutions to lower osts and extend its network. In ase of deviation from the stated business plan after issue of liene, RBI may onsider restriting the bank s expansion, effeting hange in management and imposing other penal measures as may be neessary. 10. Corporate governane The Board of the Payments Bank should have a majority of independent Diretors. The bank should omply with the orporate governane guidelines inluding fit and proper riteria for Diretors as issued by RBI from time to time. 11. Other onditions Entities other than the promoters will not be permitted to have shareholding in exess of 10 per ent of the voting equity apital of the bank. The Payments Bank shall operate in remote areas mostly through BCs and Available online: P a g e 998

9 International Journal of Researh (IJR) Available at other networks. Therefore, the requirement of opening at least 25 per ent of branhes in unbanked rural entres (population up to 9,999 as per the latest ensus), is not stipulated for them. However, the Payments Bank will be required to have at least 25 per ent of aess points in rural entres. The operations of the bank should be fully networked and tehnology driven from the beginning. The bank should have a high powered Customer Grievanes Cell to handle ustomer omplaints. The ompliane of terms and onditions laid down by RBI is an essential ondition of grant of liene. Any non-ompliane will attrat penal measure inluding anellation of liene of the bank Proedure for liensing 1) The appliations will be initially sreened by RBI to ensure prima faie eligibility of the appliants. RBI may apply additional riteria to determine the suitability of appliations, in addition to the presribed fit and proper riteria. 2) Thereafter an Expert Advisory Committee (EAC) omprising eminent professionals like bankers, hartered aountants, finane professionals, et. will evaluate the appliations. The names of the professionals in EAC will be plaed on RBI s website. 3) The External Advisory Committee will reserve the right to all for more information as well as have disussions with any appliant/s and seek larifiation on any issue as may be required by it. The EAC will submit its reommendations to RBI for onsideration. The deision to issue an in-priniple approval for setting up of Payments Bank will be taken by RBI and RBI s deision in this regard will be final. 4) The validity of the in-priniple approval issued by RBI will be one year from the date of granting suh approval and would lapse automatially thereafter. The Payments Bank would therefore have to be set up within one year of grant of in-priniple approval. 5) After issue of in-priniple approval for setting up of Payments Bank, if any adverse features are notied subsequently regarding the promoters or the ompanies/group entities with whih the promoters are assoiated or have signifiant interest and ontrol, the RBI may impose additional onditions and if warranted, may withdraw the inpriniple approval. 6) In order to ensure transpareny, the names of appliants for Payments Bank lienes will be plaed on the RBI website on reeipt of the appliations. The names of suessful appliants will also be plaed on the RBI website. 7) Banking being a highly leveraged business, lienes shall be issued on a very seletive basis to those who onform to the above requirements, Available online: P a g e 999

10 International Journal of Researh (IJR) Available at who have an impeable trak reord and who are likely to onform to the best standards of ustomer servie and effiieny. Therefore, it may not be possible for RBI to issue lienes to all the appliants meeting the eligibility riteria presribed above. RBI will adopt a autious approah in liensing Payments Banks in the initial years, and with experiene gained, may suitably revise the approah. Role of Payment Banks in finanial inlusion in India Regardless of the differenes in produt offerings, Payment banks will be able to provide a bank aount that will allow the ustomer the following: a) A bank aount that is onneted to the existing finanial institutional and market infrastruture b) A widespread network of loations where funds in suh aounts an be onveniently aessed Hene by enrolling savings aount ustomers, Payment banks automatially further the ause of finanial inlusion. By offering savings aounts, Payment banks are promising the ustomer ash withdrawals based on the priing model that they adopt, the business model will need to be transation based. As has been observed in mobile money deployments in other parts of the world, players often harge fees for withdrawals. Debit ards are offered in some ases but harges apply. At sale, the reah of Payment banks and their appetite to serve low-inome ustomers are both expeted to be superior to that of existing banks. There are various reasons why payment banking will revolutionise money movement, the payment banks will hange the way of the people think, the way they keep money and the way the pay. First, and foremost, payment banks will bridge the last mile (or last miles) between bank branhes and the remote ustomer living in a rural hamlet. Payment banks will essentially rely on tehnology to reah payment servies to all ustomers, using mobiles as the vehile of banking. Mobiles go even where humans don t. Physial bank branhes (or bankers or ATMs) will still be needed for some funtions - opening an aount, depositing ash, et - but all day-to-day payments, inluding peer-to-peer payments) an be done remotely. The mobile phone will beome the virtual ATM and small-payments heque-book. In less than 10 years, every Indian will have a bank aount. Payment banks are the key enablers. Seond, banking osts will ome down due to intense ompetition driven by the expeted proliferation of payment banks. Currently, we pay through our noses for banking servies, whether it is above-limit ATM transations, additional heque-books, big money transfers, maintenane of minimum balanes, or draft issuane fees. These osts will ome down as payment banks start offering zero-balane aounts and low-ost servies. Third, the publi setor banks are sitting duks for bankrupty and taxpayer bailouts if they do not hange. Between then, effiient payment and private setor banks will take away their lurative businesses and prized ustomers, as they will be both well apitalised and effiient. The government Available online: P a g e 1000

11 International Journal of Researh (IJR) Available at should privatise the weaker banks quikly if it is not to be stuk with feeding white elephants permanently. The weaker publi setor banks are dead duks. Fourth, the arrival of payment banks - inluding India Post - will transform soial welfare and subsidy shemes. Even if the Modi government does no other reform but this one, government subsidy payments to the poor - whether for LPG, kerosene or even food and fertiliser - an now be routed through regular and payment banks. India Post is already there in plaes where banks aren't there (with over 1.5 lakh post offies), and tomorrow Airtel and Vodafone and Idea (and Reliane Jio, when it enters mobile telephony later this year) will reah ustomers through mobile-enabled payment systems. The holy triad of Jan Dhan no-frills bank aounts, Aadhaar IDs and mobile banking will enable diret payments to the poor, eliminating fake reipients, ensuring ash in zero-balane aounts, et. Inlusive banking and subsidy reforms are simply the biggest things to happen during the Modi government, even though the seeds for this were planted by earlier governments. The differene between State Bank and Airtel is simply this: both have over 200 million ustomers, but Airtel an go where State Bank annot with a branh. Fifth, mobile banking will reate the onditions for ash-less banking. This means, over time, the mobile will perform the same role as redit and debit ards, obviating the need for too many ash payments. Even ATM expansion an now be slowed down in ities, and foused on distant villages or towns. Sixth, we now have one additional tool to eliminate blak money in large parts of the finanial system. A government that wants to eliminate blak money - whih the Modi government says it wants to - an effetively ban ash transations one a 95 perent mobile and Jan Dhan penetration rate is ahieved. India is lose to reahing a mobile user base of one billion, and Jan Dhan is said to have reahed all households. The next target for Jan Dhan should be universal adult overage through mobile, payment banking. It is ahievable in five to 10 years, with some publi and private investment in finanial literay eduation and empowerment of rural itizens, espeially women. Seventh, the government will be one of the biggest benefiiaries of payment banking, as payment banks will expand its aess to heap funds. Currently, banks are the major investors in government bonds. While this will remain so even with the entry of payment banks, the sheer impat of additional money oming into payment bank aounts whih an only invest in short-term government bills of up to one year's maturity means short-term rates will ome down, and the government an borrow more heaply. Eighth, bank depositors an expet to earn higher short-terms deposit rates from payment banks, and the old 4 perent savings bank norm will probably fade away. After payment banks, the RBI will liense small banks, whih have to fous loans on small borrowers and not big orporates. One this happens, non-bank finane ompanies will beome "small banks" and make finanial inlusion more omplete from the small borrower's point of view. Between them, payments banks and small banks will make Indian banking more ompetitive and more inlusive on both the assets and liabilities sides that is, for both depositors Available online: P a g e 1001

12 International Journal of Researh (IJR) Available at and borrowers. The era of the onsumer is finally at hand. Hene it is reommended that PB ustomers are enouraged to link their PB savings aounts with government benefit shemes in ase that is their only formal institutional aount. This would benefit the government, itizens, as well as invite transations, benefiting the servie provider. Presently it is not lear if there are inentives or fees that the government will provide partiipating banks for diret benefit transfers. The bulk of the ost inurred by banks and business orrespondents in serviing benefit transfers is in ash management osts. In ases where an inentive is provided by the government ageny disbursing the funds, it is usually linked to the ash withdrawal of the funds by the benefiiary. However, for transating aounts, it is not feasible to distinguish redits or debits in an aount that are a result of ustomer ativity from those that are government payments. As suh, most providers enourage the benefiiaries to use the aounts exlusively as a benefit transfers aount to avoid reoniliation omplexities that would deny provider ommission reeipts linked to suh ash outs. This in turn results in low transation ativity as well as dormany in suh aounts. Regardless of any inentive payouts for serviing benefit payments, mandates requiring Payment banks to subsidize their priing mehanism speifially to servie benefit payment withdrawals or issue debit ards free of harge are likely to negatively impat the viability of PB business models or result in some other distortion. Finally, given the reent positive momentum of the PMJDY program oupled with the fat that the liensing proess for Payment banks has been finalized, there are onerns around what direted finanial inlusion role the Payment banks will be able to play in the short-term, as the rollout of Payment banks is now expeted to be in the later part of Conlusion: The reent guidelines on Small Finane Banks and Payment Banks are aimed at setting up institutions that will help in finanial inlusion. These institutions shall provide the rural and unbanked population aess to redit, wealth reation and ontingeny planning through lending and distribution of third party produts suh as mutual funds, insurane and pension produts. Tehnology driven low ost model of payment and small finane banks overome the hallenge of high transation ost faed by sheduled ommerial banks in offering banking servies in rural / unbanked areas. Further the regulation is a positive development for Non Banking Finane Companies (NBFCs), Miro finane institutions (MFIs) whih already have operations in rural entres to onvert into small finane banks. This would enable them to aess low ost deposits to meet their funding needs and an prove to be a launhing pad for beoming a universal bank. Also in the final guidelines, RBI has done away with geographial restrition, thus these entities an diversify risk arising from geographial onentration with the inrease in size. Overall, these guidelines are positive for the finanial setor and an at as stepping stone for inreasing the banking penetration. Available online: P a g e 1002

13 International Journal of Researh (IJR) Available at Referenes [1] Business Standard. 2 Marh "Payment banks annot launh other finanial operations". [2] Business Standard. 2 Marh "All you want to know about Small Banks and Payments Banks". [3] Reserve Bank of India. 2 Marh 2015 "Guidelines for Liensing of Payments Banks".. [4] Reserve Bank of India. 2 Marh RBI releases Report of the Committee on Comprehensive Finanial Servies for Small Business and Low Inome Households". [5] Live Mint. 26 July "RBI panel suggests new set of banks for finanial inlusion". [6] The Hindu Business Line. 4 February Reserve bank of India "RBI releases appliants list of payment, small bank liene". [7] Business Standard. 3 February Retrieved 8 Marh "Usha Thorat, Nahiket Mor to head RBI panels for differentiated bank lienses". [8] Hindustan Times. 28 February Retrieved 2 Marh Postal dept to use its network for proposed payment bank". [9] Reserve Bank of India. 19 August "Appliants for Payments Banks". Available online: P a g e 1003