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How to Start Payment Bank in India - BizAdvisors


How to Start Payment Bank in India: A Complete Guide

How to Start Payment Bank in India

The Reserve Bank of India (RBI) came up with the novel idea of a “Payment Bank,” which permits transactions much like a typical bank but does not lend money or issue credit cards. A license for a payment bank in India must be obtained before operations may begin. Payment Banks’ adaptability and simplicity make banking simpler.

They additionally help the government realize its vision of “Digital India” by offering a range of services to customers via safe digital channels. To launch a payment bank, you must first obtain a license. The Reserve Bank of India (RBI) issues licenses to start a Payment Bank. This article will discuss how to Start Payment Bank in India.

Payment Bank

A payment Bank is usually regarded as the new model of bank. It is similar to other banks but operates on a smaller scale. Thus doesn’t involve much risk to the business. The Payment Bank carries out similar functions as usual banks and offers various services to the customers but doesn’t advance loans and issues credit. Thus it is a great step from the government for digital India.  

Functions performed by a Payment Bank in India

A Payment Bank performs various functions. Following mentioned are some of the functions:  

  • A Payment Bank functions similarly to other banks but on a smaller scale and without taking on any credit risk. In short, it could be said that Payment Bank performs most banking tasks but does not advance loans or issue credit cards.
  • Demand deposits up to Rs 1 Lakhs can be accepted, along with remittance services, mobile payments/transfers/purchases, and other banking options like ATM/debit cards, net banking, and third-party cash transfers.
  • Payment Bank in India was established with a viewpoint to make online transactions a much safe mode for transferring money and also to reconstruct the Indian economy in terms of financial status and identity. 

Features of Payment Bank in India

A Payment Bank in India has the following features:

  • Payment Banks in India are different banks, not universal ones.
  • Payment Bank in India functions on a more compact scale.
  • A minimum paid-up capital of Rs. 100,000 is required.
  • For the first five years after the beginning of its operations, the promoter of the Payment Bank in India must provide at least 40% of the paid-up equity capital.

Activities that Payment Banks can Carry Out

The following are the activities that Payment Banks in India perform: 

  • Up to Rs 2,000 000 can be deposited with payment banks. Demand deposits in the form of savings and current accounts are acceptable.
  • Deposits received only in the form of Statutory Liquidity Ratio may be placed in safe government securities (SLR). This must equal 75% of the remaining balance on the demand deposit. The remaining 25% must be deposited over some time with other designated commercial banks.
  • Payments banks will be able to transfer money domestically and internationally on current accounts.
  • Debit cards may be issued by it.

Benefits of Payment Bank

A Payment Bank has the following advantages:

  • Financial inclusion and banking expansion in rural areas.
  • Enlargement of the established financial system.
  • A strong substitute for commercial banks.
  • Efficiently handles transactions of low value and high volume.

Key aspects to be considered before starting a Payment Bank

Before starting a Payment Bank in India, some key aspects are essential to be considered. Following are some of the aspects needed to be considered:

  • Any company with a legal presence in India that wishes to start a banking operation must apply for a Payment Bank license using Form III by Rule 11 of the Banking Regulation (Companies) Rules 1949. The application should be sent to the Department of Banking Regulation’s Chief General Manager at the RBI.
  • The Payment Bank has to be completely networked from the beginning. Utility bills are acceptable at the Payment Bank in India. It is not permitted to set up subsidiaries to carry out non-banking activities. 
  • There must be 25% of its branches in unbanked rural areas. To set itself apart from other sorts of banks, the bank must refer to itself as a “Payments Bank” in its name.
  •  The Payment Bank will be registered as a public limited company under the Companies Act of 2013 and granted a license as payments banks under Section 22 of the Banking Regulation Act of 1949.
  • The instructions specified that the Payment Bank in India would be registered as a public limited company under the Companies Act of 2013 (the “Act”). Additionally, they will be granted licenses by Section 22 of the 1949 Banking Regulation Act.
  • Banks had to apply for a restricted license that allowed them to only process deposits, remittances, and payment provisions.

Procedure to Start Payment Bank in India

Following is the process to Start Payment Bank in India:

  • The payment bank must get a license under Section 22 of the Banking Regulation Act of 1949 and register as a public limited company under the Companies Act of 2013.
  • In accordance with Rule 11 of the Banking Regulation(Companies) Rules 1949, any company established in India that desires to launch a banking operation must submit a Form III application for a payment bank license.
  • The application must be delivered to the Chief General Manager of the Department of Banking Regulation at the RBI.
  • The RBI will conduct an initial screening to assess eligibility on a preliminary basis, and additional criteria may be used as needed.
  • An External Advisory Committee (EAC) made up of renowned specialists including Chartered Accountants, Bankers, Finance Professionals, and others will assess the applications.
  • If necessary, the EAC may contact applicants for interviews and issue information requests.
  • The final say on whether to provide in-principle permission rests with the RBI.
  • Since the in-principle approval is only suitable for 18 months, the bank must be operational by then.
  • The RBI[1] may impose further conditions or, if required, revoke the in-principle authorization if any unfavorable traits are found after the in-principle permission is granted.


A Payment bank has a wider scope in India. The concept of a payment bank is taking off in India like wildfire, and newcomers who wish to launch their own banking system are also tentatively accepting the idea of the financial market and the widespread use of ATMs and other sources related to it. The introduction of Payments Banks has been a significant breakthrough in Indian banking. In a country with a low rate of general literacy, only something so revolutionary could address the problem of financial inclusion. . Inclusion and financial literacy are crucial building blocks for the development of a digital ecosystem. The government in India has also received crucial help from Payment Bank in implementing various government welfare programs, transfer systems, and subsidies. A reliable company popularly known as BizAdvisors.io helps people establish Payment Banks in India by guiding them through each stage of the process.

Read our article:Payment Bank License Procedure: A Complete Overview

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