‘Minimum capital of ₹100 cr, too high for payments bank’

Payments bank is seen as an idea whose time has come. They are viewed as a vehicle that could help tackle India’s huge financial inclusion challenge.

It is widely perceived that a mobile service provider, a supermarket chain or a non-banking finance company could – as a payments bank – drive government’s financial inclusion agenda. They could provide payments services to migrant workers, low-income households and small businesses among others. Are the policymakers providing the right regulatory framework for payments bank as a category to flourish and create opportunities for all players to enter this space?

BusinessLine spoke to Subir Gokarn, Director of Research at Brookings Institution India and former Deputy Governor of Reserve Bank of India (RBI), to get his views on the recent payments bank guidelines issued by the central bank. Excerpts from this interview:

What is your view on RBI’s final guidelines on Payments Bank?

Payments bank is a sort of semi-bank and the structure envisaged has practically very low risk.

So are there are issues of concern about the final guidelines in helping realise the desired outcomes?

Yes, I think the minimum stipulated paid-up of capital of ₹100 crore is in excess. It should be significantly lower.

Why do you think it should be significantly lower?

Because this (a minimum capital requirement of ₹100 crore) could deny many smaller players from entering the space and playing the role of payments bank successfully.

In a payments bank situation, there is very low risk. All the deposits (maximum of ₹1 lakh allowed from each depositor) are insured (by DICGC). Payments bank cannot lend and so there is very low risk there also.

What then should be the appropriate capital requirement for payments bank?

I don’t have one particular number. The many interactions I have had with several prospective players recently in seminars and conferences threw up a suggestion of ₹5 crore as minimum paid-up capital. I feel that the capital requirement has to be consistent with the risk profile.

In the RBI’s final guidelines, there is clearly a mismatch between the capital requirement of ₹100 crore and the risk profile in payments bank.

All that I am saying is that given the strength of payments bank model, there is a need to create opportunities for all people and not exclude smaller players.

Any thoughts in general about the Government’s financial inclusion efforts?

I think we should encourage innovation and experimentation when it comes to last mile. This should be done as long as the system is protected.

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