Obligation of Payment Banks in India: A Critical Study

Abstract

By offering basic banking services to underprivileged groups, payment banks' launch in India is a revolutionary project that aims to improve financial inclusion. Despite their potential, payment banks face significant challenges that impede their ability to fully meet their obligations. This study critically examines the obligations imposed on payment banks and the associated issues and challenges. Key regulatory obligations include maintaining a minimum paid-up capital, adhering to capital adequacy ratios, and complying with investment norms, such as holding a significant portion of their deposits in government securities. Operational restrictions prevent them from issuing loans or credit cards, limiting their revenue models. Furthermore, stringent know your customer (KYC) norms and the need for robust grievance redressal mechanisms add to their operational complexities. Compliance with multiple regulatory frameworks further complicates their operational landscape. Despite these challenges, payment banks are crucial for achieving financial inclusion, offering services, such as mobile banking and direct benefit transfers. However, issues like high operational costs, limited revenue streams, and stringent regulatory requirements hinder their effectiveness. This study suggests that optimizing regulatory frameworks and exploring new revenue models are essential for the sustainability and success of payment banks in India.