Final guidelines on payments banks soon

The Reserve Bank of India (RBI) is soon set to bring out final operational guidelines for payments banks, more than a year after the regulator granted in-principle approval to 11 players for setting up such banks.

This comes about close to two years after the final licencing guidelines had been issued in November 2014, which detailed the requirements and eligibility on the operational front.

Three people familiar with the development told Business Standard that the banking regulator has made it clear that the final guidelines on operations would be out soon. This was also communicated to the players at a closed-door conference in Pune about a week ago.

"RBI thinks the payments banks are a completely new set of banks and completely different from the ones that exist in the country," said a the person who was present at the meeting. "Therefore, we need far more detailed guidelines with respect to capital adequacy ratio, statutory liquidity requirements branches, etc."

However, RBI hasn't given a timeline on when the guidelines are expected. But the in-principal approvals were handed out in September last year and the players had been given 18 months to begin operations.

In September last year, RBI had given in-principle nod to 10 players for small finance banks. Out of this, two have already started operations. Some have been given the final approval. However, RBI is not planning to come out with any separate guidelines for these players as their operations are similar to that of a universal banks and, therefore, the regulator doesn't see the need for such rules. In the case of payments banks, there is no precedence and, therefore a more detailed guidelines are needed, players had said.

Another person familiar with the development said after three players dropped out of the race to set up payments banks, the noise on the profitability and the viability fronts had amplified. That was why the regulator purportedly went back to the drawing board to take a detailed look at the guidelines. Out of the 11 players that were given the licences, Tech Mahindra, a consortium led by Dilip Shangvi and Cholamandalam Investment and Finance had dropped out. Out of the remaining eight, only Airtel has got the final approval from RBI.

Some of the players who had opted out had rising competition from banks and other players in the digital arena as a concern. Other said the scope to make money was very limited in the payments bank space. Expert said it might take at least three years for these players to break even.

Payments banks are being been introduced with the aim of improving financial inclusion. Therefore, the players have been allowed to provide small savings account and payments and remittance services. They are also allowed to accept deposits of up to Rs 1 lakh and can issue debit cards and offer internet banking. However, they are not allowed to lend. Apart from the limited scope of activities, other concerns that remain are on the investment front as these banks are required to invest 75 per cent in government securities, which will reduce the margins even further.