Airtel Payments Bank gets scheduled bank status from RBI

In news– Recently, the Reserve Bank of India (RBI) announced the inclusion of Airtel Payments Bank in the second schedule of the Reserve Bank of India Act, 1934.

About Airtel Payments Bank

The company is a subsidiary of Bharti Airtel which was launched in January 2017.
As India’s first Payments Bank, it is among the fastest-growing digital banks in the country, with a base of 115 million users.
It was launched as a differentiated bank that provided essential financial services to its customers.
It offers a suite of digital solutions through the Airtel Thanks app and a retail network of over 500,000 neighbourhood banking points.
With this status, it can now pitch for government-issued Requests for Proposals (RFPs) and primary auctions.
It can also undertake both central and state government business, besides participating in government-operated welfare schemes.

About Payments Banks–

Payments Banks were set up based on the recommendations of the Nachiket Mor Committee to operate on a smaller scale with minimal credit risk.
Their objective is to advance financial inclusion by offering banking and financial services to the unbanked and underbanked areas, helping the migrant labour force, low-income households, small entrepreneurs etc.
They are registered under the Companies Act 2013 but are governed by a host of legislations such as Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007.
These are differentiated and not universal banks.
These banks need to have a minimum paid-up capital of Rs. 100,00,00,000.
Minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall be at least 40% for the first five years from the commencement of its business.
Payment banks can take deposits up to Rs. 2,00,000.
It can accept demand deposits in the form of savings and current accounts.
The money received as deposits can be invested in secure government securities only in the form of Statutory Liquidity Ratio (SLR).
This must amount to 75% of the demand deposit balance. The remaining 25% is to be placed as time deposits with other scheduled commercial banks.
They cannot issue credit cards, cannot accept time deposits or NRI deposits and they cannot issue loans.
They are permitted to make personal payments and receive cross border remittances on the current accounts and can issue debit cards.
However, they cannot set up subsidiaries to undertake non-banking financial activities.
India currently has 6 Payment Banks— Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank and Jio Payment Bank.

What is a scheduled bank?

The banks in the Indian banking system are sub categorized as Scheduled Banks, Non-Scheduled Banks, Private Banks and Public Banks.
Scheduled Banks in India refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934.
RBI in turn includes only those banks in this Schedule which satisfy the criteria laid down vide section 42(6)(a) of the said Act.
The bank’s paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as a scheduled bank.
These banks are liable for low interest loans from the RBI.
They have membership in clearing houses.
They have numerous obligations to fulfill such as maintaining an average daily Cash Reserve Ratio with the central bank.

The banks listed in Schedule II are further classified as –
Scheduled Commercial Public Sector Banks (includes SBI and its associates)— in total 12.
Scheduled Commercial Private Sector Banks — in total 21.
Scheduled Foreign Banks in India — in total 45.

They also include Regional Rural banks (RRBs) and Cooperatives.

Some of the important functions of Scheduled Banks are: