A traditional bank offers services that can be broadly categorized into three groups: acceptance of demand and time deposits from the public, extension of credit facilities to borrowers and payments and remittance services.
A payments bank, as differentiated from a traditional bank, will offer only certain restricted banking services to its customers.
A payments bank as the name suggests, is set up with the objective of furthering the cause of financial inclusion by offering payments and remittance services and demand deposit products to the masses.
Functions of a Payments Bank
A payments bank can extend payments and remittance services by setting up branches to facilitate cash deposits and withdrawal or through other channels like ATMs, Debit Cards, Mobile and Internet Banking.
They can also accept remittances to be sent to or receive remittances from multiple banks under a payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.
A Payments bank can undertake utility bill payments on behalf of its customers and the general public and act as a Business Correspondent (BC) of another bank.
A payments bank may also distribute low-risk financial products such as mutual fund and insurance plans.
What a Payments Bank cannot do
A payments bank is restricted from undertaking the following functions:
1. Accept demand deposits in excess of Rs. 100,000 per individual. Thus, a Payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer. [Note that this is an initial limit and may change from time to time]
2. Accept time deposits from its customers.
3. Extension of credit facilities and issue of credit cards.
Note that in order to aid the cause of financial inclusion, a payments bank will be required to have at least 25 per cent of physical access points including BCs in rural centres.