Monday, February 09, 2015

Demerits of PAYMENT BANK Initiative of RBI(Reserve Bank of India)

Ques. 32. “The ‘payment bank’ initiative of RBI is both not viable and unwise” Comment. 

Ans.  Payment Banks is one more effort of the Govt. to bring in financial inclusion after Jan Dhan Yojana which was able to open 80 million banks accounts against the targeted 75 million in the first 4 months. The concept of Payment Banks was put forward by Nachiket Mor panel constituted by RBI.

The unviability of Payment Banks can be checked by looking into its pros and cons

Pro – 

(a) Only Rs. 50 crores investment needed for Payment Bank when compared to Rs.500 crores for scheduled commercial banks.
(b) Good scheme to target poor strata as middle and upper class will refrain from opening an account due to Rs.1 lakh upper limit deposit
(c) This payment bank scheme if gets into the India post which is already established at 55,000 locations and has experience in remittance, forex  and E-payment schemes/services can be a win win proposition if governed cautiously and judicially.

Cons – 

(a) Lending is not allowed as 75% of deposits should be in the form of SLR and the rest 25% can be operated that too through scheduled commercial banks. This puts a big question mark on how these banks will make profit.
(b) The RBI has issued a guideline that cash dispensation can not be linked to financial and non financial activities of the owners which means that telecom companies which open payment banks can not use their phone service to dispense cash.
(c) Payment banks try to make small transactions cashless. But will this cashless facilities be attractive to rural populace is still to be seen. Poor people may still prefer taking their salaries through cash than through payment banks.
(d) Payment banks making their profit only through payments and transfers which seems like an unviable option as these are already provided by big commercial banks on more favourable/economical terms.

So we can see that payment banks can be efficient if appropriate reforms are introduced for their smooth running and making them competitive.

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