Payment Bank
Also written Payments Bank
A new category of bank that offers savings and current accounts, debit cards and remittances, but cannot give loans, issue credit cards, or accept fixed or recurring deposits.
In plain language
A payment bank is a bank with a narrow job: keep your money and move it.
It can hold your savings or current account, give you an ATM or debit card, and send and receive payments. It cannot lend. No loans, no credit cards, and no fixed or recurring deposits.
It was created to reach people who find a full bank branch far away or hard to deal with, such as a migrant worker who wants to send money home each month.
How it works
The booklet (Chapter 4) lists the Payment Bank as one of the new categories introduced by the Reserve Bank of India, with these features:
| Can | Cannot |
|---|---|
| Provide savings account and current account facilities | Accept recurring or fixed deposits |
| Accept demand deposits | Issue credit cards |
| Issue ATM and debit cards | Give loans or advances |
| Offer payment and remittance services through various channels |
The other two new categories in the same table:
- Small Finance Bank: takes small deposits and gives small loans to small business units, micro and small enterprises, small and marginal farmers and the unorganised sector.
- Business Correspondent: a representative of a bank who goes to customers, usually in remote villages, to open accounts, take deposits, transfer funds, collect loan repayments and disburse small credit.
Beyond the booklet: the RBI also caps the balance a payment bank customer can hold (a limit raised from Rs 1 lakh to Rs 2 lakh in 2021). The booklet does not state a cap.
A worked example
Amounts are illustrative.
Manoj, from a village in Darbhanga, works on construction sites in Surat and earns Rs 16,000 a month. He wants to send Rs 7,000 home every month and keep some savings aside.
He opens a savings account in a payment bank through its local outlet. He receives a debit card, and each month he sends Rs 7,000 to his wife's account in Bihar using the bank's remittance service.
After a year he has saved Rs 30,000 and asks the payment bank for a fixed deposit, and later for a Rs 50,000 loan to repair the family home. The payment bank refuses both. It cannot accept fixed or recurring deposits and cannot give loans.
For the loan he goes to a Small Finance Bank, which exists precisely to give small loans to people like him. For the FD he uses a commercial bank. The payment bank stays his tool for the job it does best: holding and moving money.
Why NISM asks about it
Chapter 4 (Savings Related Products) has a table of the new bank categories: Payment Bank, Small Finance Bank and Business Correspondent. The question writes itself: which of the following can a payment bank NOT do? The answer set is loans, credit cards, fixed and recurring deposits.
Common exam traps
- A payment bank can issue a debit card but not a credit card.
- It can accept demand deposits but not fixed or recurring deposits.
- It cannot give loans or advances at all. A Small Finance Bank can.
- A Business Correspondent is a person representing a bank, not a type of bank.
- Small Finance Banks both take small deposits and give small loans; payment banks only do the first.
- The booklet presents these as categories introduced by the RBI, not by SEBI.
Check yourself
1.Which of the following can a payment bank NOT do?
- a)Provide savings and current account facilities
- b)Issue ATM or debit cards
- c)Accept recurring or fixed deposits and give loans or advances
- d)Offer payment and remittance services
Show the answer
Answer: (c) Accept recurring or fixed deposits and give loans or advances
The chapter's payment bank entry: "Provides savings account/current account facilities. Can accept DEMAND DEPOSIT BUT NOT RECURRING/FIXED DEPOSIT. Can issue ATM/Debit Cards BUT NOT CREDIT CARDS. CANNOT GIVE LOANS/ADVANCES. Offer payment and remittance service through various channels." Learn the three prohibitions as a set: no fixed or recurring deposits, no credit cards, no loans or advances. Every exam question on payment banks is built from one of them. Set this against the small finance bank, which is almost the opposite creature — it exists to lend, taking small deposits and disbursing small loans to "small business units, micro and small enterprises, small and marginal farmers and entities in the unorganized sectors", serving "unserved and underserved sections of population." And note that a Business Correspondent is not a bank at all but "a representative of a bank who goes to customers."
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Business CorrespondentA representative of a bank, also called a Bank Mitra, who goes to customers in remote places and villages to open accounts, take deposits, transfer funds and give small loans.
- Debit cardA card linked to your own bank account, used at ATMs and to pay at shops. It spends money you already have, so there is no interest and no credit history needed to get one.
- Financial inclusionGovernment and RBI efforts to bring every household into the formal banking system — zero-balance accounts, low-cost demat accounts and schemes like Jan Dhan Yojana are the booklet's three examples.
- Reserve Bank of IndiaIndia's central bank, set up on April 1, 1935 under the RBI Act. It runs monetary policy, regulates and supervises banks and NBFCs, is banker to the Government and lender of last resort.
- Small Finance BankA category of bank introduced by the RBI that takes small deposits and gives small loans, mainly to people and small businesses the banking system does not reach well.
- Banker to an issueA scheduled bank or other SEBI-specified banking company that accepts application and allotment monies, refunds application money and pays dividend or interest warrants for an issue.
- Recurring DepositA bank deposit where you put in a fixed amount every month for a set term. It earns more than a savings account, and TDS applies beyond a stipulated amount of interest.