Payments banks (PBs) may approach the Reserve Bank of India (RBI) to allow them to take small-value fixed as well as recurring deposits, as garnering low-cost savings bank (SB) deposits is proving an uphill task given the high-interest rates being offered by commercial banks on term deposits.

These banks are also likely to make a pitch to allow them to offer small-ticket loans to individuals and micro- and small enterprises (MSEs) to enhance their viability, said sources aware of recent deliberations on the road ahead for PBs.

The need for enhancing the scope of activities of these ‘vertically differentiated banks’ comes in the backdrop of five out of the 11 applicants who were given in-principle approval to start a PB in 2015, either not commencing operations or voluntarily giving up their certificate of registration.

Now, only six PBs — Airtel Payments Bank, Fino Payments Bank, India Post Payments Bank, Jio Payments Bank, NSDL Payments Bank, and Paytm PB — are operational.

Out of these six, the RBI has imposed severe restrictions on Paytm PB due to “persistent non-compliances” and continued material supervisory concerns in the bank. Fino PB has applied to the RBI to convert into a small finance bank.

FD/RD needed to stop deposit outflow

“Commercial banks’ low-cost CASA (current account, savings account) deposits have come down over the last few quarters as customers prefer investment in fixed deposits, non-convertible debentures, mutual funds, equities, etc., which offer better returns. Given this situation, there is no way PBs can stop the decline in their savings bank (SB) deposits.

“So, the only way to stop deposit outflow is to allow us to offer FDs and recurring deposits (RDs),” said a senior PB official.

Simultaneously, allowing PBs to offer small-ticket loans in select segments, such as individuals and MSEs, which will fetch a higher yield on advances, will help in servicing high-cost FDs and RDs.

Up the cap

These vertically differentiated banks (which are focused on small savings and payments/remittance services) also want the RBI to increase the maximum end-of-day balance a customer can maintain with them from ₹2 lakh to ₹5 lakh in sync with the increase in deposit insurance cover.

PBs provide payments and remittance services to the migrant labour workforce, low-income households, small businesses, other unorganised sector entities, and other users.

These banks can only accept demand deposits (current account and savings bank account/CASA) with a maximum balance of ₹2 lakh per individual customer.

They cannot undertake lending activities but distribute financial products like mutual fund units and insurance products, etc., and act as business correspondents of another bank.

As of March 2023, the six operational PBs collectively had deposits (predominantly SB deposits) and investments (mostly in government securities) aggregating ₹12,174 crore (₹7,829 crore as of March 2022) and ₹12,064 crore (₹9,937 crore), respectively, per RBI data. Five PBs were profitable in 2022-23.

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