RBI/2016-17/80
DBR.NBD.No.25/16.13.218/2016-17
Chief Executive Officers
of Payments Banks October
6, 2016
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
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 theMaster
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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