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Payment Bank License Procedure: A Complete Overview

Payment Bank License Procedure: A Complete Overview

A payment bank is a new concept developed by the Reserve Bank of India (RBI) that allows transactions similar to a traditional bank but does not lend or issue credit cards. Before starting a payment bank, a Payment Bank License is mandatory. Payment banks make banking easier because of their flexibility and ease. This article will let you know about the payment bank license procedure and everything else about it. 

payment banks also provide a variety of services to consumers via secure digital platforms, assisting the government in achieving its goal of “Digital India.” You must first get a payment bank license to start a payment bank. The license is issued by the Reserve Bank of India (RBI) under Section 22 of the Banking Regulation Act 1949.

The objective of payment banks

 Payments bank’s main goal is to provide payment and financial services to all low-income households, small enterprises, and migratory workers in a safe, technology-driven environment. The Reserve Bank of India aims to provide financial support to all of India’s remote locations via supporting payment banks. With a secure payment gateway for all transactions, it hopes to reinvent the Indian economy.

What is the Procedure for Obtaining a Payment Bank License?

The payment bank must register as a public limited company under the Companies Act 2013 and be licensed by Section 22 of the Banking Regulation Act 1949. Fo9llowing are the steps to be followed for taking the above-mentioned license- 

  • Any company formed in India that wishes to start a banking operation must apply for a payment bank license using Form III, according to Rule 11 of the Banking Regulation (Companies) Rules 1949.
  • The application should be sent to the RBI’s Department of Banking Regulation’s Chief General Manager.
  • The RBI will perform an initial screening to determine prima facie eligibility, and further criteria may be applied if necessary.
  • The applications will be evaluated by an External Advisory Committee (EAC) comprised of notable experts such as Chartered Accountants, Bankers, Finance Professionals, and others.
  • The EAC may issue requests for information and hold talks with applicants as needed.
  • The RBI will make the final decision on whether or not to provide in-principle permission.
  • The in-principle permission is valid for 18 months, which implies the bank must be established within that time frame.
  • If any negative characteristics are discovered after the in-principle permission is issued, the RBI may impose further requirements or, if necessary, rescind the in-principle approval.

Required Paid-Up Capital to Obtain a Payment Bank License

According to the RBI, the minimum paid-up equity capital necessary to create a payment bank is Rs 100 crore. In addition, the promoter must provide at least 40% of the paid-up equity capital during the first five years of the company’s existence. According to the Foreign Direct Investment Policy (FDI Policy), as revised from time to time, foreign shareholding in payment banks would be permissible for Foreign Direct Investment (FDI)[1] in private banks in India.

Promoters who qualify for a Payment Bank License

The Payment Bank License needs a minimum of Rs 100 crore in paid-up capital, which the RBI has characterized as a large list of qualifying participants. The following promoters are eligible for the Payment Bank License procedure:

  • Existing non-bank institutions Authorized issuers of pre-paid payment instruments under the Payment and Settlement Systems Act of 2007
  • Individuals/professionals
  • NBFCs
  • Business correspondents for corporations
  • Cellular phone companies
  • Chain supermarkets
  • Companies

What Kinds of activities can a Payment Bank Do?

The following activities are permitted for the Payment Bank- 

  • Demand deposits up to Rs 1 lakh per client are accepted.
  • Debit cards are issued.
  • Payment and remittance services are available.
  • Financial product distribution, such as mutual funds and insurance.
  • A prepaid payment instrument is issued.
  • Services for online banking.
  • Assisting another bank’s business correspondent.
  • Customers’ utility bills are paid on their behalf.

Requirements for a Payment Bank license 

There are certain requirements which one need to follow before taking the Payment Bank Licence and such requirements are given below- 

  • The payment bank must invest at least 75% of its demand deposit balances in government securities or Treasury Bills with maturities of up to one year that are recognized by RBI as acceptable securities for maintaining the Statutory Liquidity Ratio (SLR).
  • Maintain a maximum of 25% in current and time deposits with other scheduled commercial banks for operations as well as liquidity management.
  • A minimum paid-up capital of Rs 100 crore is required.
  • A capital adequacy ratio of at least 15% of risk-weighted assets must be maintained, as well as a leverage ratio of at least 3%.
  • Foreign shareholding will be governed under the FDI policy for private banks.
  • Due to the possibility of operational or liquidity risk, payment banks will be required to follow the RBI’s liquidity risk management standards.

Information should be given to the Reserve Bank of India

The following are the details that must be supplied to the RBI in order to receive a Payment Bank License in India-

Individual Partner Information

  • Promoter’s name
  • Date of birth
  • Residence status
  • Parent’s name
  • PAN (Permanent Account Number) number
  • Branch and bank account information, as well as credit facilities
  • Individual Promoter Experience 
  • Areas of Expertise
  • Business Track Record and Financial Worth

Details about the Promoter of the Bank

  • The promoter entity’s shareholder pattern
  • The promoter entity’s Memorandum of Association (MOA) and Articles of Association (AOA);
  • Financial statements for the promoter entity’s last five years;
  • ITRs (Income Tax Returns) from the preceding three fiscal years

Details about the Promoter Group’s Individuals and Entities:

  • Names of individuals and entities in the Promoter Group
  • Names of individuals and entities
  • Details of the Promoter Group’s Individuals and Entities; Shareholding Pattern Details; Management Details
  • Total Assets of the Entities
  • Pictorial Organ gram
  • All of the group’s entities’ annual reports over the previous five years
  • List of Recognized Stock Exchanges where Shares Can Be Listed
  • Permanent Account Number (PAN)
  • TAN (Tax Deduction and Collection Account Number)
  • CIN (Company Identification Number)
  •  Bank Account and Branch Details

Conclusion 

A Payment Bank License is mandatory for setup a payment bank. Demonetization has completely transformed the Indian economy. People nowadays choose to use digital payment gateways over paperless transactions. It has given an unexpected boost to E-wallets and mobile wallets, which were previously marginalized. Payment banks are the key market for such internet gateways. A Payment Bank License is required to launch any payment gateway. Consult an expert to get Payment Bank License. You can also reach an expert at bizadvisor.io for getting the more information regarding the same.

Read our article:Payment Aggregator and Payment Gateway- Key Differences

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