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Sunday, April 20, 2014

Reserve Bank of India deputy governor K C Chakrabarty questions payment banks' viability

Outgoing Reserve Bank of India deputy governor K C Chakrabarty has questioned the viability of payment banks and has said that they do not serve the purpose of financial inclusion. The statement comes at a time when RBI governor Raghuram Rajan has indicated that the central bank was in favour of issuing bank licences for limited purposes such as payments.

In an interview to a television channel, Chakrabarty said, "My only question about payment banks is what will be their viability? The question is how will they earn money?" The deputy governor also said that financial inclusion was not limited to merely opening bank account. "Financial inclusion is also providing emergency credit. But the maximum request from the poor is for emergency credit." He, however, added that this was an experiment that should be tried.

The concept of payment banks was mooted by a panel headed by veteran banker Nachiket Mor, who was asked to look into ways and means of extending financial inclusion across the country.

One of the recommendations of the Mor Panel was allowing payments bank which will open accounts for the underprivileged. These accounts will enable the customer to receive funds, deposit cheques and make payments. However, it will not engage in any form of lending and instead park all funds in government bonds.

Chakrabarty, who headed two large public sector banks before taking over as a deputy governor at RBI, has sought early retirement two months ahead of his tenure coming to an end and will step down on April 25. He was responsible for several customer friendly measures during his term at the central bank. These include the move to remove pre-payment charges on loans and also a requirement that all bank branches offer a basic savings account facility for those who do not have a bank account.

The unique feature of the basic savings account was that it did not require any minimum balance requirements and could be opened on the basis of self-declaration without immediately offering any proof of address or identity.

According to bankers, if customers are to be provided free ATM access, free cheque books and are provided with regular statement of account, the break-even could be achieved only with an average balance of Rs 30,000 per account. If they were to offer an account without any balance requirement but with all these services, the customer would have to be charged separately for the services.

According to Mor, licence to payment banks will bring in tech savvy service providers such as pre-paid card operators who can leverage technology to provide services for the unbanked at low cost.

Source: Economic Times


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