October 6, 2016
Chief Executive Officers of Payments Banks
Madam / Dear Sir,
Operating Guidelines for Payments Banks
Please refer to the Guidelines for Licensing of Payments Banks (‘Licensing Guidelines’) dated November 27, 2014, under which in-principle approvals/ licences were issued to the applicants for setting up of the payments banks.
2. The need for separate Operating Guidelines for payments banks was examined, considering the differentiated nature of business and financial inclusion focus of these banks. Accordingly, the Operating Guidelines for payments banks are given in the Annex.
3. The prudential frameworks for market risk and operational risk are being examined and the instructions in this regard will be issued separately.
4. These Operating Guidelines are supplementary to the Licensing Guidelines and take immediate effect.
(S S Barik)
Chief General Manager-in-Charge
Operating Guidelines for Payments Banks
1. Prudential regulation
The prudential regulatory framework for payments banks (PBs) will largely be drawn from the Basel standards. However, given the financial inclusion focus of these banks, it will be suitably calibrated.
1.1. Capital adequacy framework
|Minimum Capital Requirement||15%|
|Common Equity Tier 1||6%|
|Additional Tier I||1.5%|
|Minimum Tier I capital||7.5%|
|Tier 2 capital||7.5%|
|Capital Conservation Buffer||Not Applicable|
|Counter-cyclical capital buffer||Not applicable|
|Pre-specified Trigger for conversion of AT1||CET1 at 6% up to March 31, 2019, and 7% thereafter|
1.2 Large exposures limits (for investments in deposits of scheduled commercial banks)
The exposure in this regard to an individual scheduled commercial bank shall not be more than five per cent of the total outside liabilities of the PB.
1.3 Capital measurement approaches
|Credit Risk||Basel II Standardized Approach for credit risk|
1.4 Inter-bank borrowings
PBs will be permitted to participate in the call money and CBLO market as both borrowers and lenders. These borrowings would, however, be subject to the limit on call money borrowings as applicable to scheduled commercial banks.
1.5 Investment classification and valuation norms
Note: Balances with other scheduled commercial banks in excess of 25 per cent of DDB (including the earnest money deposits of BCs), is permissible to the extent the excess amount is sourced from funds other than DDB (including the earnest money deposits of BCs).
1.6 Restrictions on loans and advances (including lending to NBFCs) including regulatory limits
PBs will not be permitted to lend to any person including their directors. However, PBs may lend to their own employees out of the bank’s own funds, as per a Board approved policy outlining the caps on such loans.
1.7 Para-banking activities
PBs will not be permitted to undertake any para-banking activity except those allowed as per the Licensing Guidelines and the related FAQs issued.
1.8 Product approval
2. Risk management
2.1 Credit risk management including credit concentration risk
Not applicable, except as indicated in para. 1.3.
2.2 Market risk management
The provisions regarding market risk management for PBs will be as applicable to commercial banks. PBs will be permitted to use derivatives only for the purpose of hedging their foreign currency positions arising out of the activities conducted under the AD Category II authorization.
2.3 Operational risk management
Payment Banks should implement the operational risk management requirements, issued by RBI for scheduled commercial banks for operational risk, including collection of operational loss data.
2.4 Liquidity risk management
The provisions regarding liquidity risk management shall be as applicable to scheduled commercial banks, with suitable enhancements to take into account the liquidity risk profile of PBs.
2.5 Strategic and reputational risk management
The provisions regarding strategic and reputational risk management shall be as applicable to scheduled commercial banks, with suitable enhancements to take care of the reputational risk arising from use of agents.
2.6 Internal controls, audit and compliance
The provisions regarding internal controls, audit and compliance by the PBs shall be as applicable to scheduled commercial banks, with suitable enhancements to take care of the ICT related aspects and operations through agents.
3. CRR, SLR, disclosures and statutory/regulatory reports
For PBs, the CRR and SLR requirements and the various disclosures and statutory/regulatory reports will be as applicable to commercial banks (see the Master Circular RBI/2015-16/98 DBR.No.Ret.BC.24/12.01.001/2015-16 dated July 1, 2015 and the circulars issued thereafter).
4. Ownership and control regulations
The extant provisions in this regard as applicable to private sector banks, as covered in the Master Directions on Issue and Pricing of shares by Private Sector Banks DBR.PSBD.No.95/16.13.100/2015-16 dated April 21, 2016 and Master Directions on Ownership in Private Sector Banks DBR.PSBD.No. 97/16.13.100/2015-16 dated May 12, 2016, shall be applicable to PBs as well, except what is provided in the existing regulation contained in the Licensing Guidelines.
5. Corporate governance
5.1 Constitution and functioning of board of directors
The extant provisions as applicable to banking companies shall be applicable to PBs as well. Specifically in the case of converting entities, the terms and conditions of appointment of existing Directors will be grandfathered till completion of their present term.
5.2 Constitution and functioning of committees of the board, management level committees, remuneration policies
The extant provisions in this regard as applicable to private sector banks, shall be applicable to PBs as well.
6. Banking Operations
6.1 Authorization of Access Points
6.2 Regulation of Business Correspondents
Note: It is clarified that in cases where a PB is acting as the BC for a bank, the BC engaged by the PB shall not open deposit accounts for the partner bank for whom the PB acts as the BC or undertake KYC documentation for that bank.
6.3 Bank charges, lockers, nominations, facilities to disabled persons, etc.
The extant provisions in this regard as applicable to scheduled commercial banks, shall be applicable to PBs as well.
7. Bank deposits
(i) As provided in the current RBI directions, PBs can accept only savings and current deposits. The aggregate limit per customer shall not exceed ₹100,000, as provided in the Licensing Guidelines. However, the RBI will have no objection to the PBs making arrangements with any other scheduled commercial bank / SFB, for amounts in excess of the prescribed limits, to be swept into an account opened for the customer at that bank. This arrangement should be activated with the prior written consent of the customer.
(ii) The above limit shall apply to customer deposits and not to any security/earnest money deposit the bank may collect from any of its service providers in the ordinary course of business.
(iii) All RBI and BR Act provisions and RBI directions relating to minimum balance, inoperative accounts, unclaimed deposits including transfer of such deposits to the Depositors Education and Awareness Fund maintained by RBI on regular basis, nominations, cheques/drafts, etc., will be applicable to the PBs.
(iv) Payments Banks:
8. KYC requirements
9. Foreign exchange business
Payments Banks shall:
10. Other banking services
10.1 Currency distribution(covering detection of forged and counterfeit notes, currency chest facilities, facilities for exchange of notes)
PBs may, at their option, exchange mutilated and defective notes at their branches, subject to compliance with RBI norms.
10.2 Customer education and protection
11. Outsourcing of operations, internet banking and mobile banking
12. Implementation of Ind AS
Implementation of Ind AS would be applicable to PBs once they become scheduled banks. In view of the same, it is recommended that the PBs start adoption of the same in order to avoid transition costs subsequently.