What is the difference between payments banks and commercial banks?

Payments Banks and the Commercial Banks both work as per the Banking Regulation Act, 1949. The basic difference between commercial banks and payment banks is that later can accept deposits up to maximum Rs. 1 lakh/customer while there is no such limit for commercial banks.

The payments banks have been registered as a public limited company under the Companies Act, 2013. These banks have been licensed under section 22 of the Banking Regulation Act, 1949. Currently there are 7 payments banks are operating in the country.

In addition to the Banking Regulation Act, 1949; the payments banks will also be governed by the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, Reserve Bank of India Act, 1934, Payment and Settlement Systems Act, 2007 and Foreign Exchange Management Act, 1999.

The main objectives of setting up of payments banks is to ensure the financial inclusion by providing payments/remittance services to migrant labour workforce, opening up small savings accounts of small business holders, low income households, workers of the unorganised sector.

In India both the Payments Banks and the Commercial Banks work under the Banking Regulation Act, 1949, but still there is a huge difference between the functions of the commercial banks and payments banks.

How Payments Banks and the Commercial Banks are different from each others;

1. It is believed that the banking system in India was started in 1786 after the establishment of the Bank of Calcutta whereas the payments bank started its operation in November 2017.

2. The Commercial Banks can accept any amount as deposit per customer but the payments bank will be restricted to holding a maximum balance of Rs. 1,00,000 per individual customer.

3. Payments banks are allowed to issue ATMs or debit cards to their account holders but they can’t issue a credit card while there is no such rule for commercial banks.

4. The initial minimum paid-up voting equity capital for a commercial bank shall be 500 crore rupees while the minimum paid-up equity capital for payments banks shall be Rs. 100 crore.

5. Payment banks can’t give loan services to the people, while the main earning of the commercial banks comes from the loan services only.

6. Payments banks can’t accept deposits from the NRI persons. It means, the Non Resident Indians (NRIs) who have settled abroad can’t deposit their money in the payments banks while commercial banks can accept deposits from NRIs.

7. Payment banks must use the word “Payments Bank” in their name to look different from other banks but commercial banks need not to do so.

8. Payment banks should invest at least 75% of their total demand deposits in government securities (called Statutory Liquidity Ratio) with a maturity period of at least one year, while commercial banks have to invest maximum 22% of demand deposits in such securities.