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Overview of Payments Bank Licence in India
In order to encourage digital payments and small savings, the Reserve Bank of India (RBI) established a unique type of banking model known as a Payments Bank under the Banking Regulation Act of 1949. In contrast to conventional banks in India, Payments Banks are only allowed to offer current and savings accounts, issue debit/ATM cards, and take deposits up to ₹2,00,000 (Rupees two lakhs) per customer. However, the bank is prohibited from issuing credit cards or loans to its clients. To apply for a payment bank license, the company must be duly incorporated in India and have a minimum of ₹100 crore. Telecom companies, prepaid wallet providers, retail chains, corporate business correspondents, postal networks, and public sector entities are eligible to apply for a Payments Bank licence, provided that they match the RBI’s eligibility criteria.
What is a Payments Bank?
A Payments Bank is a special type of digital bank created by the Reserve Bank of India (RBI) to handle safe, small-value banking. It can accept deposits, provide payments and remittances and debit cards. It also acts as a platform for users to purchase insurance and invest in SIPs and mutual funds.
Example: Paytm Payments Bank, Airtel Payments Bank, Jio Payments Bank, Fino Payments Bank
Safe deposits + fast payments = Payments Bank.
What Can a Payments Bank Do?
- Accept deposits in savings and current accounts, up to ₹2,00,000/-
- Provide payment services such as UPI, IMPS, NEFT, RTGS.
- Issue debit/ATM cards (including RuPay cards) and offer internet/mobile banking.
- Provide a platform for third-party products like insurance, pension products, and mutual funds (as a distributor/corporate agent), earning fee income.
- It provides people with different places and ways to put money into their account (cash-in) or take money out (cash-out). The places can be bank branches, banking correspondents (BCs), or agent outlets.
- Provide utility services to merchants, including QR acceptance and settlement accounts for small businesses (within regulatory limits).
What Can’t a Payments Bank Do?
Payments Banks are not permitted to do the following:
- No lending to customers, they cannot offer loans or credit cards to customers.
- No term deposits beyond the permitted demand deposit structure; they also cannot issue sophisticated credit products.
- No complex treasury risk-taking
- No cross-holding of risky subsidiaries for financial activities is allowed for Payments Banks.
How Does a Payments Bank Make Money?
As we know, payment banks do not lend money; the business model depends on:
- Float income from investing customer balances in permitted safe assets.
- Payment economics, such as acquiring/merchant fees, interchange on debit card usage, and remittance fees (within regulatory caps).
- Insurance, mutual fund units, pensions (NPS/APY) and other simple third-party products.
- Value-added services for MSMEs: invoicing tools, payouts, collections, settlement add-ons.
Who Can Apply for a Payments Bank Licence?
RBI’s licensing has deliberately opened eligibility to a broad set of promoters who already touch retail customers or handle cash/transactions at scale, for example:
- Existing non-bank players such as mobile telecom companies, PPI (wallet) issuers, supermarket/retail chains, corporate BC networks, non-bank finance/service companies with strong distribution, cooperatives in the real sector, and public sector entities.
- Promoter groups must satisfy “fit and proper” criteria, i.e., they should have sound credentials, integrity, and a track record of governance and compliance.
- The bank must be set up as a company under the Companies Act, 2013, and will require an RBI licence under Section 22 of the Banking Regulation Act, 1949.
Note: Foreign ownership is permitted as per the FDI policy for private sector banks, subject to caps and conditions applicable at the time of licensing/approval, and fit-and-proper clearance.
Requirements to Obtain Payment Bank License
- Minimum paid-up equity capital: ₹100 crore at the time of obtaining licensing.
- Promoter contribution: Mostly at least 40% to be locked in for a minimum period (as prescribed at the time of licensing).
- Allowed to accept deposit: The bank is permitted to accept deposits only up to ₹2,00,000 per customer.
- Prudential placements: A large share of demand liabilities must be invested in short-dated G-secs/T-bills and a capped share kept as deposits with scheduled commercial banks (exact buckets per operating guidelines).
- Cash Reserve Ratio (CRR): As banks and Payments Banks maintain CRR with RBI on applicable liabilities (as specified by RBI from time to time).
- Capital adequacy/leverage: RBI prescribes prudential norms suited to the no-lending model (focused on operational/market/liquidity risks rather than credit risk).
Documents Required to Apply for Payment Bank License in India
1. Company Documents
- Certificate of Incorporation.
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Details of registered office and correspondence address.
- Board resolution approving the application for a Payments Bank licence.
2. Details of the Promoter
- Names, addresses, and contact details of all promoters.
- PAN, Aadhaar, and identity/address proofs of individual promoters.
- Net worth certificate of promoters, certified by a Chartered Accountant.
- Shareholding pattern of the applicant company and group entities.
- Declaration of fit and proper status of promoters (as per RBI guidelines).
3. Financial Documents
- Proof of minimum paid-up equity capital of ₹100 crore.
- Projected financial statements for the first 5 years - business plan, income, expenditure, profitability, etc.
- Sources of funds for capital infusion.
- Audited financial statements of the applicant and group companies for the last 5 years.
- Details of borrowings, liabilities, and contingent liabilities of promoters/group companies.
4. Business Plan
Detailed 5-year business plan, including:
- Market analysis and target customer segments.
- Technology architecture and proposed IT systems.
- Risk management framework.
- Products and services to be offered.
- Geographic spread and financial inclusion strategy.
- Projected branch/outlet expansion.
- Plans for compliance with AML (Anti-Money Laundering) and KYC norms.
5. Management and Governance of the Company
- List of proposed directors and key managerial personnel (KMPs).
- Detailed CVs of directors and KMPs.
- Self-declaration from directors/KMPs stating that they have no criminal record, they are not disqualified under the Companies Act, 2013, and comply with RBI’s “fit and proper” criteria.
- Organisation structure chart of the proposed bank.
6. Technology and Infrastructure
- IT policy framework ensuring secure digital transactions.
- Details of proposed technology service providers.
- Cybersecurity and fraud management policies.
- Business continuity plan and disaster recovery system.
7. Compliance and Regulatory Documents
- Compliance report showing adherence to RBI’s eligibility norms.
- Details of related party transactions, if any.
- Declaration regarding compliance with FDI/ownership and control norms (if foreign investment is involved).
- Income Tax, GST, and compliance certificates.
- No Objection Certificates (NOCs) from regulators, if the applicant or group entities are regulated by SEBI, IRDAI, TRAI, or PFRDA
Procedure for Obtaining Payment Bank License
Step 1: Build a business plan
Build a 5-year business plan, target segments, distribution model (own branches, BCs, partnerships), technology stack (CBS, payment rails, cybersecurity), and framework/policy for risk and compliance, and line up capital (minimum ₹100 crore) and lock-in commitments; map eventual shareholding pattern to FDI and fit-and-proper norms.
Step 2: Prepare the licence application to the RBI
- Fill RBI’s application form for banking licence (Payments Bank) with annexures on ownership, governance, financials, promoter background, and past compliance track. Attach the detailed business plan, IT and security architecture (including fraud, data, uptime), outsourcing policy, grievance redress, and financial inclusion roadmap.
- Submit the application to RBI’s Department of Regulation within the timeline (if round-based) or on tap (as permitted by RBI at the time).
Step 3: Scrutiny, interactions, and “fit and proper” assessment
The RBI will evaluate the financial soundness of the company, governance standards, promoter integrity, and business model viability.
Step 4: In-principle approval
If satisfied, RBI issues an in-principle approval subject to conditions. This is not a licence; it is a time-bound window.
Step 5: Set up the bank
- Appoint the Board of Directors with independent directors, hire key managerial personnel (CEO, CRO, CCO, CTO, CISO, CFO), and set up three lines of defence (business, risk/compliance, internal audit). Implement core banking, payments connectivity (NPCI, card networks), cyber-security, fraud systems, BC/agent network controls, and outsourcing contracts in line with RBI Directions.
- Frame customer-facing policies such as KYC/AML, privacy, grievance redress, etc.
Step 6: RBI inspections and final licence
The RBI may conduct pre-licensing inspections and system audits. On satisfactory compliance, RBI grants the banking licence to commence operations as a Payments Bank under the Banking Regulation Act, 1949.
Everyday Compliance for the Payment Banks
- Deposit cap enforcement: Strict per-customer end-of-day balance cap at ₹2 lakh today.
- KYC/AML controls: No-compromise onboarding, ongoing monitoring, STR/SAR filing, sanctions screening, PEP checks, and robust agent-level controls.
- Cybersecurity: Comply with RBI’s IT framework, digital fraud controls (transaction risk limits, velocity checks), and incident reporting.
- Customer protection: Transparent charges, easy dispute resolution, timelines for failed transactions (UPI/card reversals), and Ombudsman escalation paths.
Quick Checklist
- The promoter group qualifies as fit and proper as per the guidelines of the RBI
- ₹100 crore capital entirely tied up
- The company is duly incorporated under the Companies Act, 2013
- Incorporation under the Companies Act, 2013.
- 5-year business plan with realistic unit economics.
- IT, cyber, fraud stack designed for real-time payments.
- KYC/AML policy aligned to RBI KYC Directions.
- Disclosure of the financial statement, fee sheets, and Ombudsman.
Why Choose Us for a Payment Bank License?
At Kanakkupillai, we are committed to helping you get a Payment Bank License in India. Our team of experts has significant experience dealing with the challenges of this specialised banking model, ensuring a smooth and successful journey for our clients.
- Expertise and Guidance: Our professionals provide in-depth help on the qualified factors and cash needs set by the Reserve Bank of India (RBI). We carefully review your application to ensure it meets all necessary standards, increasing your chances of getting the license.
- Comprehensive Support: From document preparation and filing to regulatory body communication, we provide full support throughout the application process. To guarantee a perfect experience, our staff talks closely with you to handle any questions or issues that might arise.
- Ongoing Support and Compliance Monitoring: Our commitment to your success does not stop even after we get the Payment Bank License. We provide constant help and compliance tracking to ensure your bank runs under the RBI's recommended regulatory structure. We are totally committed to your long-term success.
- Proven Track Record: Kanakkupillai has experience helping people get Payment Bank Licenses successfully. Our understanding and careful nature have always produced positive results. Hence, we are the best option for anybody wanting to set up a Payment Bank in India.
Frequently Asked Questions
Why is the payment licence called a “differentiated” banking licence?
Because, unlike universal banks, which can do everything from deposits to lending, a Payments Bank has a restricted scope. RBI “differentiated” them so that they focus only on safe deposits, digital payments, and inclusion without taking any credit risk.What happens if a Payments Bank keeps deposits above ₹2 lakh in a customer’s account?
RBI strictly enforces the per-customer cap. If a customer exceeds the ₹2 lakh balance, the bank must immediately stop further credits and may even refund or transfer the excess amount to another bank account. Non-compliance can lead to strict regulatory penalties.Can an NBFC or FinTech convert itself into a Payments Bank?
Yes, but only if it is incorporated as a separate company under the Companies Act, 2013, specifically for this purpose. It cannot simply use its NBFC licence. The new company must meet the ₹100 crore capital requirement and the RBI’s fit-and-proper test.Can a Payments Bank operate ATMs or issue cheque books?
Payments Banks can issue debit/ATM cards and operate their own ATMs. However, they generally do not issue cheque books because their accounts are designed as digital-first demand deposits with small-value balances.What happens if a Payments Bank fails or shuts down? Is customer money safe?
Since Payments Banks invest almost all deposits in Government securities or with scheduled commercial banks, customer money remains safe. If the bank fails operationally, RBI ensures settlement through regulatory measures, similar to how it handles other banks.Do Payments Banks have to follow the same KYC norms as normal banks?
Yes. Payment Banks must comply with the RBI’s Master Directions on KYC. This includes Aadhaar-based eKYC, PAN verification, PEP/sanctions list checks, and monitoring suspicious transactions. There are no relaxations even though balances are capped.Can Payments Banks partner with other financial institutions?
Yes. They can tie up with insurance companies, mutual funds, pension funds, and even scheduled commercial banks for cross-selling and distribution. However, such tie-ups must follow the RBI’s outsourcing and agency guidelines.Do Payments Banks need to maintain CRR and SLR like other banks?
Yes, they have to maintain Cash Reserve Ratio (CRR) with RBI and must invest a prescribed portion of their deposits in Government securities such as SLR. The difference is that they cannot use deposits for lending, so their CRR/SLR compliance is purely for safety and liquidity.Can Payments Banks be converted into Small Finance Banks (SFBs)?
Yes. RBI allows Payments Banks with a good track record of at least five years to apply for conversion into a Small Finance Bank. This gives them permission to lend and expand into universal banking functions.How do Payments Banks benefit small traders and migrant workers?
Payments Banks allow instant account opening with low KYC hurdles, safe deposits up to ₹2 lakh, remittance facilities for families in villages, and digital merchant payments. They also reduce dependency on informal moneylenders and help micro businesses access digital settlement tools.What makes Us Different
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