Indian banking system in transformation mode

With Reserve Bank of India (RBI) licensing 11 companies to commence banking operations as 'Payment Banks,' Indian banking system is poised for a major revolution in the days to come.

As a result, half a billion unbanked people will be part of the banking system. The 11 entities include Department of Posts, telecom majors, and Indian business conglomerates. New Payment Banks can accept deposits up to INR100,000 ($1,530) and can issue debit cards/ATM cards only, but not credit cards and neither offer lending facility. This apart, Payment Banks can offer similar services on par with universal banks.

The objective of Payment Banking system is to bring the rural India into the folds financial system. Payment Banks can deposit money in government bonds.

India has been lagging behind other emerging nations in terms of banking facilities. It's estimated that 65 percent of adult Indians have no exposure to the formal banking system.

Financial inclusion for rural masses is one of the core objectives of India's Prime Minister Narendra Modi. His government's top priority is to spread mobile banking across India as it's already successful in developing nations including African countries.

The new initiative would bring half a billion Indian into the mainstream of economy, said Vijay Shekhar Sharma, CEO of One97, an e-commerce company, which is among the 11 entities that received licenses as Payment Banks.

The 11 new licensees include India's most valued business conglomerate Reliance Industries (RIL), Aditya Birla Group, Tech Mahindra and telecom majors such as Airtel and Vodafone, to name a few.
The regular commercial banks are called as 'Universal Banks' and the new Payment Banks, which are just given license, are expected to revolutionize the Indian banking system.

Opening an account with Payment Banks is as easy as buying a pre-paid mobile sim card. By offering remittances, fund transfers, and other banking services, Payment Banks are expected to bring down transaction costs lower for consumers.

Above all, maintaining the minimum balance is no more a burden for Payment Banks' customers. Further, it will create more competition in the banking system and this will lead other Universal Banks to lower transaction costs and minimum required balance as well.

The list of new licensees also includes individuals who got the approval to commence Payment Banks. Dilip Shantilal Shanghvi, promoter of Sun Pharma, and Vijay Shekhar Sharma of PayTM have received licenses on their individual capacities.

India's Finance Minister Aurn Jaitley expressed his confidence that Payment Banks would help rural people in accessing banking services and ensure more money comes into the system.

Regular commercial banks (universal banks) will also part of the new Payment Banks as they have already firmed up plans to partner with them. For instance, India's largest bank State Bank of India (SBI) will hold 30 percent stake in Reliance's Payment Bank. Kotak Mahindra Bank will acquire 19.9 percent holding in Airtel's Payment Bank.

Department of Posts will offer banking services through its vast network of 1,54,000 post offices across the country. Rural areas will get easy banking access through the Postal Department as it has 130,000 post offices in remote areas.