Payments Banks (PBs) want the Reserve Bank of India (RBI) to up the maximum end of the day balance a customer can maintain with them from Rs 2 lakh to Rs 5 lakh in sync with the increase in the deposit insurance cover.
DICGC insures bank deposits such as savings, fixed, current, and recurring.
Previously, under the Guidelines for Licensing of PBs, issued on November 27, 2014, these banks could hold a maximum day end balance of ₹ 1 lakh per customer. This was in line with the then deposit insurance cover of Rs 1 lakh.
Although the deposit insurance cover was raised to Rs 5 lakh, with effect from February 4, 2020, the maximum balance a customer can hold in a PB at the end of the day has not been increased commensurately.
RBI had doubled the maximum balance a customer can hold at end of the day in a PB to ₹2 lakh on April 8, 2021.
Micro, small and medium enterprises (MSMEs), small traders and merchants can benefit if the maximum end of the day balance per customer is enhanced to Rs 5 lakh as cash flow management will become better, said a top official of a PB.
Further, this can also increase PBs pool of low-cost current account, savings account (CASA) deposits.
“This is the right time to revise the maximum day end deposit limit upwards in view of the changing economic scenario. It will also be in keeping with the increase in the deposit insurance limit,” said the chief of a PB.
RBI Governor Shaktikanta Das, in a statement on April 7, 2021, said that based on a review of performance of payments banks and with a view to encourage their efforts for financial inclusion and to expand their ability to cater to the needs of their customers, including MSMEs, small traders and merchants, it has been decided to enhance the limit of maximum balance at end of the day from ₹1 lakh to ₹2 lakh per individual customer.
Currently, if a customer’s deposit with a PB at the end of the day exceeds Rs 2 lakh, an auto sweep arrangement allows the PB to open a fixed deposit on behalf of the customer with a partner Bank (usually a small finance bank or a private sector bank).
For example, Fino Payments Bank and Paytm Payments Bank have partnerships with Suryoday Small Finance Bank and IndusInd Bank, respectively.
PBs are niche banks that leverage technology for financial inclusion and are aimed at small businesses and low-income households.
According to RBI guidelines, the primary objective of setting up of PBs is to further financial inclusion by providing (i) small savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments / remittance services in a secured technology-driven environment.
Being a nascent business model that requires heavy overhead costs especially at the beginning, most of these banks are yet to turn profitable, per the Report on Trend and Progress of Banking in India 2019-20.