RBI ISSUED OPERATING GUIDELINES FOR PAYMENT BANK
ON 06 OCTOBER 2016 RBI ISSUED OPERATING GUIDELINES FOR PAYMENT BANK (
IPPB IS ALSO A PAYMENT BANK )
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
1. 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
Annexure
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.