What is India Post Payment Bank? What are the benefits of India Post Payments Bank account
The launch of India Post Payments Bank in 2014 was one of the most ambitious projects of the Reserve Bank of India where it wished to redefine the banking system in India by making sure that they are providing banking services and technology enabled environment of remittances on the fingertips of people. Financial Inclusion, as the name suggests, means access to and usage of affordable and easily accessible financial services such as savings, payments , remittances , loans , insurance products etc. to the common man of India. The main objective of the Payments Bank is to spread the payment ecosystem online. Hence any person can use the services of Payment Bank at a bare minimal fee for transferring funds to family back in the village. It particularly caters the small income households and the migrant labor workforce and is operating in a secured technology environment.
What is a differentiated bank and how is it linked to payments banks in India?
According to the Reserve Bank of India, Differentiated Banks are the banks that offers limited range of services/products and functions under different regulations in prescribed geographies with an aim to provide financial reservation to the unserved sections of the economy. The Payments Banks were opened in India in 2014 on the recommendation of Nachiket Mor Committee. Both Payments Bank and Small Finance Bank are a part of Differentiated Banks which are kind of paperless or mobile banks that works through innovation technology system. Hence the idea of Digital Spread in place of Break and Mortar Spread. As per the Finance Act 2017 , the Reserve Bank of India has been given designated authority for the regulation and supervision of Payments Bank. Through Payments Banks, it has been possible to establish bank accounts of 20 crore unique users in the last 4years since its inception.
How many payment banks are there in India?
11 entities were given license in 2014 in order to function as Payments Banks in India:
• Airtel Payments Bank
• Paytm Payments Bank
• FINO Pasy Tech
• Department of Post India Post
• Cholamandalam Distribution Services
• Sun Pharmaceuticals
• Tech Mahindra
• Aditya Birla NUVO
• National Securities depository
• Reliance industries
• Vodafone M-Pesa
Out of these, multiple players have already surrendered their license. So the current number is less than 11.
What are the main features of Payment Banks?
• They are private banks
• Limited to take demand deposits (savings account and current account). Cannot take time deposits (fixed deposits and recurring deposits).
• Accept deposit of upto Rs 1 Lakh per customer
• They do not have credit risk as they do not give loan
• Provides debit cards but not credit cards
• Payment Banks earn by transaction fees
• Provides forex cards to travellers that are usable as a debit or ATM card all over India
What are the RBI Guidelines for payment banks?
In order to open Payment Bank or to obtain license from RBI, minimum capital requirement is Rs 100 crore. 75% of the Payments Bank branches needs to be in the unbanked rural area. Foreign share holding is allowed as per FDI rules in private banks i.e 74%.
The Payments Bank which are licensed under Sec 22 of the Banking Regulation Act 1949 are governed by a number of statutes:
• Banking Regulation Act,1949
• Reserve Bank of India Act,1934
• Payment and Settlement Systems Act,20017
• Foreign Exchange Management Act,1949
• Deposit Insurance and Credit Gaurantee Corporation Act,1961
The Payments Banks are given the status of Scheduled Banks under the Sec42(6)(a) of the Reserve Bank of India Act,1934. They need to comply with ‘Know Your Customer’ norms.
What is the difference between Payments Banks and Commercial Banks?
• Commercial banks can accept any amount as deposits whereas Payments Banks can accept only upto Rs 1 Lakh per individual customer
• Payments Banks though can issue ATM or debit cards to their account holders ,are not allowed to issue a credit card while there is no such rule for commercial banks
• The initial minimum paid-up capital for a commercial bank shall be Rs 500 crore whereas the same is Rs 100 crore for Payments Banks
• Payments Banks can’t give loan to the people, while the main earning of the commercial banks come from the loan services
• Payments Banks can’t accept deposits from the NRI persons while commercial banks do not have any such restriction
• Payment Banks need to use the words ‘Payments Bank’ in their name to look different from commercial banks
• It is mandatory for Payments Banks to invest at least 75% of their total demand deposits in government securities also known as Statutary Liquidity Ratio with a maturity period of atleast 1year while commercial banks have to invest maximum 22% of demand deposits in such securities
When was India Post Payments Bank (IPPB) launched?
On September 1,2018 Prime Minister Narendra Modi launched the India Post Payments Bank(IPPB) it being the 3rd entity to receive Payments Banks permit,after Airtel and Paytm. This Payments Bank of the Indian Postal Department works through its huge network of post offices, postmen and Grameen Dak Sevaks. The new payments Bank offers a range of products and services such as savings, current accounts, money transfer, direct transfers and also bills and utilities payments. These products and services are offered through multiple channels like counter services, micro atms , mobile banking app and sms using the bank’s state of the art technology pattern.
IPBB has been incoprporated as a public sector company under the Department of Post with 100% government equity and is governed by the Reserve Bank of India. Before the launch , the union cabinet had approved a 80% hike in spending on IPBB to Rs 1435 crore arming it to compete in the market with existing operators like Airtel and Paytm Payments Banks. This increase is meant to cover costs relating to technology and manpower. Account can be opened in IPBB by providing details like Adhar No. with KYC verification.
What are the Benefits of India Post Payments Bank account?
• No fee for withdrawals made from IPPB ATM and PNB(Punjab National Bank) ATM, as IPPB now has a tie up with PNB
• Three types of savings accounts are offered. They are regular,digital and basic types of savings accounts.
• Offers 4% interest on all savings accounts
• Unlike most banks,there is be no need to maintain quarterly average balance and no charges for lack of minimum account balance
• It also offers QR card service for banking without having to remember account nos. Using QR card, all transactions can be authenticated via biometric verification
• IPPB offers free debit card with annual fee of Rs 100 from the 2nd year
• Through other banks and companies it has tied up with like PNB,Metlife and Bajaj Allianz , IPPB will provide 3rd party products like loans and insurance
• IPPB encourages every individual above the age of 18 years to open a digital saving A/C using their Adaahar and PAN card details. Once the KYC verification is completed within 12 months from the date of digital account opening,the digital savings accounts will be upgraded to regular savings account.
• Customers are allowed a yearly deposit of Rs 1L in their accounts exceeding which the money will be automatically transferred to the linked postal savings account
• Offers forex services at much lower rates than other banks
• IPPB has the permit to carry out RTGS, NEFT and IMPS services
• A customer can transfer money into a payment bank account from his normal bank account
• IPPB is a public sector company. India Post Payments Bank will be used by the Government to distribute subsidies , NREGA wages, pension etc. Many people will hence have to open a bank account as these subsidies ,pension,wages will be received through a formal channel and it will be necessary for them to open a bank account in order to receive the payments. So the number of bank accounts will increase which will lead to financial inclusion. This will also lead to formalization of government spending leading to reduction of leakages and increase in accountability and transparency.
What are the Challenges for India Post Payments Bank in Indian Scenario?
The launch of IPPB has marked a tectonic shift in India’s Banking landscape, opening doors of rural India to endless possibilities in the banking sector. However the Government initiative does have some hurdles that need to be crossed that seem to be more than mere teething troubles.
IPPB is burdened under the legacy of India Post . In FY 2016-17 India Post had a revenue deficit of Rs 11969 crore which was almost double of the Rs 6007 crore deficit faced by it in FY 2015-16. As per RBI rules all Payments Banks are required to deposit 75% of depo0sits in government linked securities and treasury bills making it difficult for IPPB to turn a profit. However the Postal Department is taking several steps to raise its profits by providing services like selling application forms of educational institutions and recruitment agencies,railway ticket booking,facilities for Adaahar registration and upgradation,passport services,gold bond schemes,etc. Shifting to e-commerce is also providing an added push raising the revenue earned to Rs 345 crore in 2016 from 172 crore in 2014-15.
Another major challenge facing the IPPB is its infrastructure, the biggest being in remote rural areas. With the plan to make the post man a mobile bank it seems difficult in areas where electricity and internet connectivity are an issue. With 95% of the post offices situated in rural areas, this challenge needs urgent attention. The dependence on the post man which is one of the biggest advantages of the IPPB is also its biggest challenge as along with the post he will also be having an added responsibility.
The direct jump from illiteracy to e-literacy can be a major setback. Also the Government has to deal with cyber threats like the Ransomware in order to ensure the success of IPPB. Other dominant commercial banks have levied high transaction cost on transferring amounts to IPPB in order to protect their turf.
Will India Post Payments Bank be successful in revolutionizing the banking system in India ?
The Government is providing proper training and equipments to all the IPPB employees and is set to beat all the odds to make this ambitious initiative a success. Telecommunications minister Manoj Sinha expects India Post Payments Bank to be profitable after two years as according to him, postal workers will be motivated by the commissions offered to them that will be 30% on earnings. 25% of such commission will go directly to postmen or Grameen Dak sevaks(GDS) and 5% to the department of post. This will directly provide big motivation for government workers. Other payments banks have very limited reach whereas IPPB mainly operates in the rural areas making it less prone to competition from other competing payments banks.