Payment banks: Attempt to stimulate cashless economy

By Kanika Malhotra and Pran Malik, SNG & Partners
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Access to banking services has always been inadequate for lower income groups. In order to dispense financial services to people in the lower strata at reasonable costs, the government of India introduced the distinct concept of payment banks in 2014.

Kanika Malhotra, SNG & Partners
Kanika Malhotra
Associate
SNG & Partners

Payment banks can provide banking services such as issuance of ATM/debit cards and sale of mutual fund units and insurance products, and can accept deposits to a maximum limit of ₹100,000 (US$1,500) per customer. They also render foreign exchange services at lower costs than scheduled commercial banks. However, payment banks are distinct from commercial banks as they cannot provide lending facilities to their customers. These banks principally enable the customers to make transfers and remittances through different channels such as mobile phones.

This is not the government’s first initiative to encourage cashless transactions. Earlier Pradhan Mantri Jan Dhan Yojana was introduced to advance the provision of banking services to people who do not have any bank accounts. These strategies show that the government is endeavouring to encourage the notion of a cashless economy and improve the availability of banking services to lower income households.

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SNG & Partners has offices in Delhi, Mumbai, Singapore and Doha. Kanika Malhotra and Pran Malik are associates.

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