Payment Bank As a Tool of Financial Inclusion - a Conceptual Study

Abstract

In a country like India a huge population reside in rural area and do not have a direct link to formal banking system. In this regard Financial Inclusion can be seen as the delivery of financial services at affordable costs to sections of lower income segments of society. Government of India have tried to achieve Financial Inclusion through various schemes like Kisan Credit Card (KCCs), Bhoomiheen Credit Card (Bank of India and Dena Bank), and Banking Correspondent-Banking Facilitator Model etc. Through these measures bank accounts were opened but it did not prevent people from going to money lenders because these schemes had not promoted the habit of saving. In the above context the Reserve Bank of India constituted a committee to study 'Comprehensive financial services for small businesses and low income households' headed by Nachiket Mor. As the result of the study the committee revealed that there is substantial demand for financial services in rural areas but in the absence of physical presence of formal banking sector and lack of awareness among the individuals the inclusion diffusion is not taking place. To address such issues the committee has proposed to bring in organizational innovation in the form of New age banks to develop savings habit among the excluded population. The Reserve Bank of India gave "in-principle" licenses to eleven entities to launch payments banks. These banks are expected to reach customers mainly through their technological means rather than traditional bank branches. The paper introduces the term Payments Bank, highlights the main features of this kind of new technology banks, tries to draw a SWOT analysis for this narrow banking model and also analyzes the feasibility of such model in the Indian banking sector.