The Reserve Bank of India has decided to increase the deposit limit for payments banks to Rs 2 lakh per individual customer from Rs 1 lakh at present with immediate effect.
This means that customers can deposit more funds and payment companies can expand their product offerings.
The enhanced limit is expected aid “financial inclusion and expand the ability of such lenders to cater to the growing needs of their customers including MSMEs, small traders and merchants” said RBI Governor Shaktikanta Das while announcing the monetary policy decisions.
Payments banks were launched to provide banking services to the under-served population who who lack banking access. Payment banks offer deposit services but cannot offer loans and advances to the customers. Additionally, payments banks offer zero balance or no minimum balance accounts without any additional fee.
Paytm Payments Bank, Airtel Payments Bank, India Post Payments Bank are some examples of Payment Banks.
Payment Banks can accept current and savings bank deposits, issue ATM/Debit cards but not credit cards.
Some of the beneficiaries of the step taken by RBI will include migrant workers, low-income households, small businesses, and other unorganised groups. The incomes of most of these people was adversely affected by the coronavirus disease (Covid-19) pandemic.
Since payments banks are restricted from lending and can only provide deposit services, they rely on investing the funds in government debt securities or certificate of deposits and cross-selling other financial services like payments, insurance and investments for revenue.
Despite several years of operations and a multiple partnerships between financial services companies, like insurers, mutual fund houses, Payment Banks have been reporting losses due to the high cost of operations.
As per RBI’s report on Trend and Progress of Banking in India 2018-19, “Payment banks made a net-loss of ₹626.8 crore in FY2019 compared to a net-loss of ₹515.6 crore in FY2018.”
RBI’s decision to enhance the limit of maximum balance is based on a review of the performance of these banks which help in increasing financial inclusion.
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