PrepMaticExam glossary · Bank exams
Payments bank: what it can and cannot do
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A payments bank is a niche bank that can accept deposits and provide payments and remittance services but cannot give loans or issue credit cards. The idea came from the Nachiket Mor Committee (2013-14), which suggested specialised banks for small businesses and low-income households. The RBI issued guidelines in November 2014 and gave in-principle approvals to eleven applicants in August 2015.
What it can do
- Accept demand deposits (savings and current accounts), with a cap on the balance each customer may hold. The cap was raised from ₹1 lakh to ₹2 lakh per customer in April 2021 (RBI; confirm at rbi.org.in).
- Issue debit cards and ATM cards.
- Provide payments, remittances and mobile banking, and act as a business correspondent of another bank.
- Sell third-party products such as insurance and mutual funds.
What it cannot do
- Lend to anyone.
- Issue credit cards.
- Accept time (fixed) deposits or NRI deposits.
- Set up subsidiaries to do non-banking financial business.
How it manages its money
At least 75% of demand deposit balances must be invested in government securities or treasury bills with maturity up to one year, which are eligible for SLR. It can hold up to 25% as deposits with other scheduled commercial banks for operational needs. Because the money is parked in safe securities, a payments bank carries little credit risk. Its income comes from fees and the interest on its securities.
Example
India Post Payments Bank, launched on 1 September 2018 and wholly owned by the Department of Posts, uses the postal network and postmen to serve villages. A farmer can have a savings account there and receive direct benefit transfers, but cannot get a loan from it.
How it compares
| Bank type | Deposits | Loans |
|---|---|---|
| Commercial bank | All types | Yes |
| Small finance bank | All types | Yes, mostly small loans |
| Payments bank | Demand deposits only | No |
How bank exams ask about it
Common stems: "which of the following cannot be done by a payments bank", "the maximum balance in a payments bank account", "the first payments bank launched by", and "which committee recommended payments banks". The balance cap and bank names change, so check news. The rest of the bank types are in banking awareness.
Frequently asked questions
Can I get a loan from my payments bank account?
No. You need a regular bank, a small finance bank or an NBFC for credit.
Are payments bank deposits insured?
Yes, as banks they are covered by DICGC up to the insured limit.
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