Small Finance Banks vs Payments Banks

Small Finance Banks are operated with the goal of providing financial inclusion by providing credit to small business units, farmers, micro industries, and other unorganised sectors through high-tech and cost-effective operations. They are niche banks that offer savings vehicles to underserved demographic groups.

Small Finance Banks provide basic banking services such as accepting deposits and lending capital to underserved populations. Ujjivan Small Finance Bank in Bangalore, AU Small Finance Bank in Jaipur, Equitas Small Finance Bank in Chennai, and others are prominent examples of such banks.

Payment banks also work to increase financial inclusion by offering services such as small savings accounts, payments/remittance services to migrating labour workforces, small businesses, and low-income families, among other things. They are not permitted to lend money to customers, to issue ATM/Debit/Credit cards, or to provide net-banking and mobile banking services.

These banks must adhere to the initial restriction of a maximum balance of Rs. 1 lakh per individual customer, as well as maintain a minimum of 75% of deposits in Government bonds and up to 25% of deposits with other regular commercial banks. Airtel Payments Bank, Paytm Payments Bank, NSDL Payments Bank, and others are active payment banks in India.

What are Small Finance Banks?

Small finance banks are financial institutions that provide financial services to underserved and unbanked areas of the country. They are a public limited company registered under the Companies Act of 2013. 

Like other commercial banks, these institutions can engage in all basic banking activities, such as lending and accepting deposits. Small finance banks will be established with the goal of increasing financial inclusion through (1) savings vehicles and (2) credit to small businesses, small and marginal farmers, micro and small industries, and other unorganised sector entities via high-tech, low-cost operations. SFBs were proposed by the NachiketMor committee on financial inclusion. Small finance banks are unable to make large loans. It is not possible to establish subsidiaries or trade in high-tech products.

List of Small Finance Banks in India

• Small Finance Bank Ujjivan

• Small Finance Bank Janalakshmi

• Small Finance Bank Equitas

• A Small Finance Bank of the United States.

• The Capital Small Finance Bank

• Small Finance Bank ESAF

• Small Finance Bank Utkarsh

• Small Finance Bank Suryoday

• Small Finance Bank Fincare

Small finance banks are a type of specialty bank in India. Small finance banks can perform basic banking services like deposit acceptance and lending. The goal is to bring financial inclusion to segments of the economy that are not currently served by other banks, such as small businesses, small and marginal farmers, micro and small businesses, and unorganised sector entities.

What are Payments Banks?

Payment banks were formed to promote financial inclusion by providing modest savings accounts and payments/remittance services to migratory labour workforce, low-income households, small businesses, other unorganised sector entities, and other users.’ The goal of establishing payments banks is to increase financial inclusion by offering (1) small savings accounts and (2) payments/remittance services to migrant workers, low-income families, small businesses, other unorganised sector entities, and other users. Customers will be unable to borrow from them, and their funds will be forced to be invested in government bonds and bank deposits.

List of Active Payments Bank In India

• Airtel Payments Bank.

• India Post Payments Bank.

• Fino Payments Bank.

• Jio Payments Bank.

• Paytm Payments Bank.

• NSDL Payments Bank.

Payments Banks were conceptualised by the Reserve Bank of India as a new type of bank in India (RBI). These banks can accept restricted deposits, which are currently limited to Rs 200,000 per person but may be increased in the future. These banks do not offer loans or credit cards. This type of bank can handle both current and savings accounts. ATM and debit cards, as well as online and mobile banking, can be provided by payment banks.

Differences between Small Finance Banks and Payments Banks

Payments Banks can be promoted by prepaid card issuers, telecom companies, NBFCs, business correspondents, retail chains, corporates, real estate sector co-ops, and PSUs. Individuals with at least ten years of finance experience, NBFCs, community banks, and other small finance banks promote them. 

In Payment Banks, the promoters’ share must be 40% for the first five years after the firm’s establishment; however, in Small Finance Banks, the original 40% share can be gradually reduced to 26% over a 12-year period. The Payment banks also can only accept demand deposits and the hold up to Rs. 2 lakh per person, whereas Small Finance Banks can accept all types of deposits, including FDs, RDs, Savings, and Current Accounts. 

Payment banks are permitted to distribute mutual funds, insurance policies, and other low-risk financial products. Small finance banks must ensure that less than Rs. 25 lakh loans and advances account for at least half of their loan portfolio.

Conclusion

Small Finance Banks are operated with the goal of providing financial inclusion by providing credit to small business units, farmers, micro industries, and other unorganised sectors through high-tech and cost-effective operations. Ujjivan Small Finance Bank in Bangalore, AU Small Finance Bank in Jaipur, Equitas Small Finance Bank in Chennai, and others are prominent examples of such banks. Airtel Payments Bank, Paytm Payments Bank, NSDL Payments Bank, and others are active payment banks in India. Small finance banks are financial institutions that provide financial services to underserved and unbanked areas of the country. Payments Banks were conceptualised by the Reserve Bank of India as a new type of bank in India.