Small and Payment Bank

As the sector of banking is upgrading and expanding day by day, new schemes, facilities, and reachability is also expanding. And hence small and payment banks came into existence and became accessible to the smaller income groups of society. Many of us might have heard the words “payment banks and small finance banks” associated with some of the banks. A payment bank is a bank restricted to a limited group of people with smaller scale accessibility. On the other hand, small finance banks are banks that have a low capital investment and are limited to semi-urban or rural areas  However, these payment banks and small finance banks work similarly to other nationalized banks in India.

What are Payment Banks?

Payment banks were established to connect to the consumers of remote areas. Also, payment banks offer similar facilities as national banks do but with limited access. According to the limitations of Reserve Bank of India guidelines, payment banks cannot issue credit cards. Moreover, the payment bank can accept a maximum deposit of INR 2 lakh per customer.

Similar to the working of many nationalized banks, payment banks also offer two types of accounts namely current and savings accounts. Furthermore, like other nationalized banks, debit cards or ATM cards are also issued by Payments banks and provide net banking and online banking.

Some of the popular examples of payments banks are India Post Payments Bank, Airtel Payments Bank, Jio Payments Bank, Fino Payments Bank, Paytm Payments Bank. Among the above-mentioned banks, Airtel payment bank ranks as the first payment bank owned by Bharti Airtel. 

While looking at the history of payment banks, a comprehensive report published by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households was approved by the Reserve Bank of India on 23 September 2013. This committee was guided by Nachiket Mor and hence the formation of payment banks started. Payment banks were under a separate category of banks and pioneered the commencement on 17 July 2014. After this, the RBI finally released the guidelines for the proper functioning of payment banks.

Main objectives of Payment Bank

The main objectives of payment banks are as below:

• The main promotes of payment banks include their reach to common people living in remote areas.
• The ease of not reaching the physical branch and completing all types of paperwork through online and mobile mode.

What are Small Finance Banks?

As the name suggests, a bank that offers financial services to people having small businesses, small scale farmers, small and micro industries is known as a small finance bank. Also, these types of banks are often limited to rural and semi-urban areas. The main motive to establish a small finance bank is to make finance-related facilities available to economically weaker sections of society. 

Under the Companies Act, 2013, small finance banks are designated as public limited companies. Under the Banking Regulation Act, 1949, the small finance banks are licensed under section 22 in India. Mainly small finance banks need to be approved as scheduled banks as per the guideline mentioned by the Reserve Bank of India. The small finance banks need to prove their suitability under the Reserve Bank of India Act, 1934 section 42. 

Some of the common examples of small finance banks are Ujjivan Small Finance Bank, Equitas Small Finance Bank, Janalakshmi Small Finance Bank, Capital Small Finance Bank, A U Small Finance Bank, Utkarsh Small Finance Bank, ESAF Small Finance Bank, Fincare Small Finance Bank, Suryoday Small Finance Bank.

Main objectives of Small Finance Bank

The main objectives behind the establishment of small finance banks are mentioned below, so let’s take a look.

• Firstly, the motive was to increase the reach of banks and financial services to economically lower groups and small businesses in remote and rural areas.
• While talking about accessibility, small finance banks are very similar to commercial banks but are operated at smaller levels.
• It offers the facilities such as cash deposit, cash withdrawal and even approves loan amounts to these micro and small scale businesses.

Differences between Payment Banks and Small Finance Banks

The key differences between the payment banks and small finance banks are categorized in the table below:

Conclusion

After the revolution of banking made by the Reserve Bank of India, the establishment and development of small and payment banks came into existence. Both types of banks are directly governed and managed by the guidelines of RBI. The small finance banks are developed as a boon to the small and micro-businesses located in remote areas. Due to a lack of awareness about the loan and its processes, most of the smaller businessmen would not proceed with loans through banks. Now, small finance banks provide loans to these upcoming businessmen. The payment bank has the best out of the facilities provided by them. These types of banks prefer giving mobile and online facilities. Though payment banks do not offer credit cards to their customers, the customer is attracted to them due to their accessibility to common people.