Know Difference between Payment Banks and Regular Banks in India
Payment banks and regular banks in India serve different purposes and have distinct characteristics. The regulatory framework for regular banks and payment banks in India is governed by specific acts and guidelines.
Regular Banks:
- Banking Regulation Act, 1949: This is the primary legislation that governs banking operations in India. It empowers the Reserve Bank of India (RBI) to regulate and supervise banks in matters related to their licensing, operations, management, and liquidation.
- The act provides the legal foundation for the functioning of regular banks in India and covers various aspects of banking, including capital adequacy, governance, lending practices, and resolution of banking failures.
Regular banks in India; State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, and HDFC Bank, etc.
Payment Banks:
- Payment and Settlement Systems Act, 2007: Payment Banks in India operate under the regulatory framework provided by the Payment and Settlement Systems Act, 2007.
- This act empowers the RBI to regulate payment systems and settlement mechanisms in the country. It defines the roles, responsibilities, and permissible activities of entities operating in the payment and settlement space, including Payment Banks.
- The act outlines the regulatory requirements, licensing process, and operational guidelines for Payment Banks, ensuring the stability, efficiency, and integrity of payment systems in India.
Payment Banks in India – Airtel Payments Bank Ltd, India Post Payments Bank Ltd, Paytm Payments Bank Ltd, etc.
These acts provide the legal basis for the establishment, operation, and regulation of both regular banks and payment banks in India, ensuring the stability, transparency, and efficiency of the banking and financial system in the country.
Let’s check the key differences between Payment Banks and Regular Banks:
1. Scope of Services:
Regular Banks:
- They offer a wide range of financial services, including savings and current accounts, loans, credit cards, and various investment products.
Payment Banks:
- They primarily focus on providing basic banking services such as accepting deposits, facilitating payments, and remittance services. They cannot offer loans or issue credit cards.
2. Deposit Limits:
Regular Banks:
- Allow both savings and current account holders to deposit unlimited amounts of money.
Payment Banks:
- Have a restriction on the maximum deposit limit per customer, which is capped at ₹2 lakh.
3. Interest on Deposits:
Regular Banks:
- Provide interest on various types of deposits, such as savings accounts, fixed deposits, etc.
Payment Banks:
- Can offer interest on savings deposits but usually at a lower rate compared to regular banks.
4. Lending Activities:
Regular Banks:
- Engage in lending activities, including providing loans to individuals and businesses.
Payment Banks:
- Are not allowed to lend money or issue credit cards. They primarily focus on facilitating transactions.
5. Insurance Products:
Regular Banks:
- Can offer a wide range of insurance products, including life insurance, general insurance, and other investment-linked insurance plans.
Payment Banks:
- Cannot offer insurance products directly. They are limited to providing basic banking and financial services.
6. Ownership and Capital Requirements:
Regular Banks:
- Have higher capital requirements and are typically owned by public or private entities.
Payment Banks:
- Have lower capital requirements, and they can be owned by a variety of entities, including telecom companies, retail chains, and other non-banking entities, subject to regulatory approval.
7. Branch Network:
Regular Banks:
- Have a more extensive network of branches and ATMs to reach a larger customer base.
Payment Banks:
- May have a limited physical presence, and they often leverage technology and partnerships to reach customers, including through digital channels and business correspondents.
8. Target Customer Base:
Regular Banks:
- Cater to a broad spectrum of customers, including individuals, businesses, and institutions.
Payment Banks:
- Primarily target unbanked and underbanked populations, focusing on providing basic financial services to those who may not have access to traditional banking.
9. Regulatory Framework:
Regular Banks:
- Regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, with comprehensive regulations covering various aspects of banking operations.
Payment Banks:
- Governed by a specific set of guidelines issued by the RBI for Payment Banks, outlining their permissible activities and operational limits.
In summary, while regular banks offer a comprehensive suite of financial services, payment banks are designed to address specific gaps in financial inclusion by providing basic banking services with a focus on digital and mobile platforms. Each serves a different niche within the broader financial ecosystem in India.
Must read –
All About Payment Banks in India
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