Rural areas have the least presence of payments banks’ (PBs’) functioning offices, whereas urban areas have the highest number of functioning offices, according to Crisil Market Intelligence and Analytics (MI&A).

At the end of December, 2022, maximum number of offices were in urban areas (44 per cent) and semi-urban (40 per cent) areas, followed by metropolitan (11 per cent) and rural areas (5 per cent). Six payments banks had a total number of 741 functioning offices at the end of last year.

According to the credit rating agency, the functioning offices of payments banks are likely to grow in rural areas due to the increased focus of the government on financial inclusion.

Airtel Payments Bank, India Post Payment Bank (IPPB), Fino Payments Bank, PayTM Payments Bank, NSDL Payments Bank and Jio Payments Bank are the six PBs that are currently in operation.

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

In a note prepared on the basis of National Securities Depository Ltd’s DRHP for IPO, the agency said these functioning offices form a very small proportion of total number of touch points of PBs as they are leveraging on the vast network of merchants and doorstep service providers to provide banking and related services in the last mile.

For instance, NSDL Payments Bank had 23 lakh touch points as of December 2022, while Paytm Payments Bank had 2.1 crore touch points across India as of FY21. Fino Payments Bank had a merchant network of 14 lakh banking points at the end of March 2023.

With the penetration of services such as credit, insurance and mutual funds are still at a very low level, Crisil underscored that cross-selling to retail unserved and/ or underserved customers remains an attractive opportunity for payment banks.

The share of total credit outstanding is about 8 per cent in rural areas, 13 per cent in semi-urban and 79 per cent in urban areas as of March 31, 2023, per the note.

Although mutual fund penetration (mutual fund assets under management as a percentage of GDP) has grown from 4.3 per cent in 2001-02 to about 14.5 per cent in 2022-23, penetration levels remain well below that of other developed markets, presenting an opportunity for payments banks to cross-sell investment products to customers in rural and semi-urban areas.

At the end of March 2022, PBs deposits reached ₹9,954 crore and their investments in government securities reached ₹9,924 crore, per RBI data.

PBs can hold a maximum balance of ₹2 lakh per individual customer at the end of the day. It can function as a business correspondent of another bank, and distribute simple financial products like mutual fund units and insurance products. However, they cannot undertake lending activities.