The Reserve Bank of India’s (RBI) move to share out the payment bank licence to various entities such as the niche Non-Banking Financial Companies (NBFCs),mobile operators and rich cooperates lead to a wide spread excitement for the interest rates that they would offer to capture the market share. These payment banks are allowed to take deposits of up to Rs 1 lakh per account and can provide payment and remittance service and can also issue debit cards.However,they cannot lend money or issue credit cards. The source of revenue for these banks would be the interest that they would derive by investing money in government securities and the fee that they would earn by distributing financial products such as mutual funds and insurance.
How will payment Banks change the banking space ?
1)Competition for universal banks : With the opening of payment banks and lucrative interest rates that they are willing to offer , the traditional banks will have to come up with better innovative products in order to hold on to their customer base. This can be a win-win situation for the customers.
2) Financial inclusion : These payment banks will have a wider reach and the 50% of rural population who still do not have bank accounts may benefit from the low cost technological solution that the payment banks will offer.
3)Cashless Society : The existing mobile wallets are already aligning with the government’s idea of cashless society and these payment banks can be considered a step further to achieve that aim. The licensing by RBI will also enable them to offer services at lower costs.
4)Reduce SLR Burden on commercial Banks: The Indian Banks have to park about 21.5 % of their funds towards SLR and that limits the banks’ ability to lend to the productive sector of the economy. With the payment banks inability to lend and with the mandate to invest in government securities, the government’s G-sec requirement will be taken care of and this will reduce the burden from the commercial banks.
5) Check on Black money : The electronic footprint keeping a record of all the transactions will help the tax authorities to keep a track on black money.
What is Airtel Payment Bank?
Bharti Enterprises Chairman Sunil Bharti Mittal launched India’s first payment Bank- Airtel Payment Bank, a joint venture between Bharti Airtel Ltd and Kotak Mahindra Bank Ltd, giving the highest interest rate of 7.5% on saving accounts .Most public banks offer the interest rate of about of 3%-4% while few private banks shoot up to 6%. Besides the interest rate, the Airtel Payment Bank also offers personal accidental insurance of upto Rs 1 Lakh and also free talk time corresponding to the amount deposited into the bank. The Bank would also surprise the customers by offering 100 minutes free Airtel to Airtel mobile talktime to 100,000 customers and would select the same through a lucky draw.
It aims to develop a national wide ecosystem of over 3 million merchant partners that would include small Kirana Stores, shops and restaurants and these merchant partners would accept payment from Airtel customers over mobile phones. The Bank is also already started its service in Rajasthan with over 1 Lakh saving accounts and is also planning to extend the services in Telangana, Andhra Pradesh and Karnataka in a short while.
Disruptions come at a Cost!
In order to be a leader and have a market share the Airtel Payment bank will have to pay a price. The yield on one year G-sec quoting is 6% which means that for every deposit of Rs 2000,they would incur a loss of about 25% per annum. The total loss figure may vary and depend on other factors also but it is evident that to lure customers, the payment bank will have to run into losses at least during the initial period.
What it costs to the consumers?
As of now, no fee is charged on the cash deposits, however the bank will charge a processing fee during cash withdrawals. Customers have to pay Rs 5-25 if the amount is between Rs 10 and Rs 4,000. In case the withdrawal amount is above Rs 4,000, customers have to pay 0.65% of the withdrawal amount. For instance, a customer who withdraws Rs 10,000 will have to pay Rs 65 as a charge. Transfers within Airtel Payments Bank via Internet banking, mobile app or unstructured supplementary service data is free of cost. However, transfers from Airtel Payments Bank to other banks incur a charge of 0.5% of the amount transferred.
Customers can open the account with a minimum balance of Rs 100. To close the account, they will have to pay Rs 50. The minimum amount for cash deposit, withdrawal and online fund transfer is Rs 10. The maximum amount deposit per day at a banking point is Rs 49,990.
What it adds?
Airtel Payment Banks will educate customers to make cashless payments and they firmly believe that this initiative aligns with Government’s vision of Digital India and will add to Government’s effort to make India a Cashless Economy.
An initial investment of about Rs 3000 Crore will develop a pan India Banking network and digital payment ecosystem. The low operating cost of the payment banks will come as an added advantage and will help in providing low cost services to the consumers.
Payment Banks are new model of banks conceptualized by RBI that facilitate digital transactions. The move aims to keep a check on black money, enable cashless transactions and even reduce SLR burden from commercial banks. The traditional banks need not worry as the payment banks can take a maximum deposit of Rs 1 Lakh only. Overall it can be seen that the initiative taken up will make the lives of Indians much more easy.
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