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RBI allows Payments Banks, SFBs to conduct Govt agency business

  • IAS NEXT, Lucknow
  • 17, Dec 2021
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RBI allows Payments Banks, Small Finance Banks to conduct Govt agency business.

  • It will be subject to the condition that the concerned bank is not under the Prompt Corrective Action (PCA) framework or moratorium.

Power of accrediting an agency bank:

The choice of accrediting an agency bank (including scheduled private sector agency bank) for any particular government agency business rests solely with the concerned Central Government Departments /State Governments.

Implications:

  • The Bank can now participate in government and other large corporations issued Request for Proposals (RFP), primary auctions, fixed-rate and variable rate repos, and reverse repos, along with participation in Marginal Standing Facility.
  • Also, the bank would now also be eligible to partner in government-run financial inclusion schemes.

What are Small Finance Banks?

  • Small finance banks are financial institutions that provide financial services to the country’s underserved and unbanked areas.
  • They are registered as a public limited company under the Companies Act, 2013.
  • These banks, like other commercial banks, can engage in all basic banking activities, such as lending and accepting deposits.
  • The NachiketMor committee on financial inclusion suggested SFBs.
  • Small Finance Banks can’t extend big loans. Cannot float subsidiaries or trade in high-tech products.

What are Payments bank?

Payment banks were established to promote financial inclusion by offering; ‘modest savings accounts and payments/remittance services to migratory labour workforce, low-income households, small enterprises, other unorganised sector entities, and other users.’

  • These banks can accept a restricted deposit, which is now capped at Rs 200,000 per person but could be raised in the future.
  • These banks are unable to provide loans or credit cards. Banks of this type can handle both current and savings accounts.
  • Payments banks can provide ATM and debit cards, as well as online and mobile banking.