What Are Payments Banks?

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The Reserve Bank of India (RBI) on August 19, 2015 gave in-principle approval to 11 entities to open payments banks. So what are payments bank and how will they work?

The 11 entities are:

1. Aditya Birla Nuvo
2. Airtel M Commerce Services
3. Cholamandalam Distribution Services
4. Department of Posts
5. FINO PayTech
6. National Securities Depository
7. Reliance Industries
8. Dilip Shanghvi, founder of Sun Pharmaceuticals
9. Vijay Shekhar Sharma, CEO of Paytm
10. Tech Mahindra
11. Vodafone M-Pesa

The in-principle approval will be valid for 18 months, after which these entities will be given formal licences, provided they fulfil conditions stipulated by RBI.

A payments bank is a differentiated bank that will undertake only certain restricted banking functions. They can collect deposits (initially up to Rs 1 lakh per individual), offer Internet banking, facilitate money transfers and sell insurance and mutual funds. They can also issue ATM/debit cards.

However, they will not offer any loans or credit cards. Such banks will ensure that more money comes into the banking system and will help reach out to people in rural areas.