RBI/2016-17/80
DBR.NBD.No.25/16.13.218/2016-17
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.
Yours faithfully,
(S S Barik)
Chief General Manager-in-Charge
Annex
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
i.
PBs
shall, on any given day, maintain a minimum investment to the extent of not
less than 75 per cent of ‘demand deposit balances’ - DDB (including the
earnest money deposits of BCs) as on three working days prior to that day,
in Government securities/Treasury Bills with maturity up to one year that
are recognized by RBI as eligible securities for maintenance of Statutory
Liquidity Ratio (SLR).
ii.
Further,
PBs shall, on any given day, maintain balances in demand and time deposits
with other scheduled commercial banks, which shall not be more than 25 per
cent of its DDB (including the earnest money deposits of BCs) as on three
working days prior to that day.
iii.
The
investments and deposits made according to (i) and (ii) above, together
shall not be less than 100 per cent of the DDB (including the earnest money
deposits of BCs) of the PB unless it is less to the extent of balances kept
with RBI.
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).
iv.
PBs
will not be allowed to classify any investment, other than those made out
of their own funds, as HTM category. The investments made out of their own
funds shall not, in any case be, in assets or investments in respect of
which the promoter / a promoter group entity is a direct or indirect
obligor.
v.
PBs
will not be allowed to participate in ‘when issued’ and ‘short sale’
transactions.
vi.
PBs
will be permitted to invest in bank CDs within the limit applicable to bank
deposits.
vii.
The
other directions on the subject as applicable to scheduled commercial banks
(see the Master Circular RBI/2015-16/97 DBR
No BP.BC.6/21.04.141/2015-16 dated July 1, 2015 and the
circulars issued thereafter).
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
i.
At the
time of submitting application for licence, the PBs should submit to RBI a
list of financial products they intend to offer with a clear description.
ii.
Any
new products proposed to be introduced thereafter should be intimated to
RBI for information. If required, RBI may place suitable restrictions on
the design, functioning, or other features of the product including
discontinuing the product.
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
i.
The
annual plans for opening of physical access points by the PBs for the
initial five years would need prior approval of RBI. The first of such plan
shall be submitted to RBI before commencement of business. After the
initial stabilisation period of five years, and after a review, RBI may
liberalize the requirement of prior approval.
ii.
An
employee of the PB should be available for sufficient duration, at a fixed
location known to the customers at the district level, to attend to
customer grievances and support the agent supervision. This fixed location
may also be used to conduct the banking business of the PB, and it will be
considered as a physical access point for the purposes of assessing the
requirement of opening at least 25 per cent physical access points in rural
centres.
6.2 Regulation of Business
Correspondents
i.
The
PBs can engage all permitted entities including the companies owned by
their business partners and own group companies on an arm’s length basis as
“BCs”. These companies can have their own branches managed by their
employees operating as “access points” or may engage other entities/persons
to manage the “access points” which could be managed by the latter’s staff.
In the above cases, from the regulatory perspective, the bank will be responsible
for the business carried out at the ‘access points’ and the conduct of all
the parties in the chain regardless of the organizational structure
including any other intermediaries inserted in the chain to manage the BC
network.
ii.
Inter-operability
of the BCs will be allowed except for opening of savings and current
accounts.
iii.
BCs
cannot undertake any offline transactions. Consequently, BCs cannot
undertake transactions if there is no internet connectivity.
iv.
The
PBs will be exempted from the requirement of having a base branch for a
certain number of BCs/access points managed by BCs as currently stipulated
in the RBI guidelines to scheduled commercial banks.
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:
·
need
not issue passbooks for the deposit accounts;
·
may
provide statement of account in paper form on request on chargeable basis,
or otherwise;
·
may
provide account information through multiple user friendly modes such as
SMS and/or internet banking; and
·
should
provide electronic confirmation through SMS/e-mail/printed proof for each
account transaction.
8. KYC requirements
i.
At
their discretion, PBs may (like all other banks) decide not to take the wet
signature while opening accounts and instead rely upon the electronic
authentication/confirmation of the terms and conditions of the banking
relationship/account relationship keeping in view their confidence in the
legal validity and authenticity of such authentications/confirmations.
However, all the extant regulations concerning KYC including those covering
the Central KYC Registry, and any subsequent instructions in this regard,
as applicable to commercial banks, would be applicable to PBs.
ii.
PBs
should ensure that every customer, including customers of mobile companies
on-boarded comply with the KYC regulations, which could include simplified
account opening procedures. It is clarified here that if the KYC done by a
telecom company, which is a promoter / promoter group entity of the PB, is
of the same quality as prescribed for a banking company, PBs may obtain the
KYC details of the customer from that telecom company, subject to customer
consent.
9. Foreign exchange business
Payments Banks shall:
·
comply
with all the conditions attached with the AD Cat II licence that will be
issued by the FED, CO.
·
implement
the provisions of Foreign Contribution (Regulation) Act, 2010 (As
applicable to commercial banks).
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
i.
All
customer grievance issues related to a particular access point should be
addressed both at the access point and at the district level location
mentioned above at paragraph 6.1 (ii).
ii.
PBs
will be covered by the Banking Ombudsman (BO) Scheme.
iii.
The
mechanism put in place by PBs to effectively resolve customer complaints
and its communication to customers, and role of different levels (access
point, controlling office (centre at the district level), and head office)
in grievance redressal should be clearly communicated to RBI along with the
application for licence.
iv.
The
customer service policy approved by the boards of the PBs should provide
for continuous and intensive monitoring of redressing of customer grievance
by the PBs.
v.
RBI
will closely supervise the grievance redress system of the bank through
both onsite and off-site surveillance system.
11. Outsourcing of operations,
internet banking and mobile banking
i.
The
extant provisions in this regard as applicable to scheduled commercial
banks, shall be applicable to PBs as well.
ii.
Loading
of PPI balances through other bank credit cards will be permitted.
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.
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