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    Difference Between Small Finance Bank and Payment Bank

    Both the Small Finance Bank and Payment Bank are licensed by the Reserve Bank of India. Check out the major Difference Between Small Finance Bank and Payment Bank here.

    Difference Between Small Finance Bank and Payment Bank

    By Durga Prashanna Mishra

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    Updated : October 10th, 2022

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    Despite numerous Difference Between Small Finance Bank and Payment Bank, it has to be noted that both these types of financial institutions have to abide by the rules and regulations laid down by the Reserve Bank of India. The major Difference Between Small Finance Bank and Payment Bank is that a small finance bank provides financial services to the unserved and unbanked areas, whereas a payment bank operates without involving any credit risk on a smaller scale.

    Both the Small Finance Bank and Payment Bank are licensed by the Reserve Bank of India. The functioning and the guidelines of both these banks are monitored by the central bank of the country. Let's discuss more the key Difference Between Small Finance Bank and Payment Bank in this article.

    Small Finance Bank vs Payments Bank

    A payments bank is a relatively newer concept in India brought in by the Reserve Bank of India. These banks operate on a somewhat smaller scale and are not permitted to issue credits.

    >> Difference Between Small Finance Bank and Payment Bank

    On the other hand, a small finance bank is a financial institution operating under the rules laid down by the Reserve Bank of India and providing monetary services specifically to the underserved, unserved, and unbanked territories of India.

    Differences Between Small Finance Banks and Payment Banks

    Below, we have mentioned the Difference Between Small Finance Bank and Payment Bank on the basis of parameters, objectives, scope, restrictions, etc. It will give a clear picture of the things that set apart Small Finance Bank Payment Bank.

    ParametersSmall Finance BanksPayments Banks

    Definition

    The RBI has developed small Financial Banks to provide basic banking facilities to the country's underserved and unprivileged areas

    A Payments bank is akin to a regular bank but operates on a much smaller scale

    They are not allowed to provide any credit assistance to their customer's

    Objectives

    Set up to offer financial inclusions by providing credit facilities and loans to small businesses operating from underprivileged areas, marginal and small farmers, small and micro industries, and other businesses operating specifically in the unorganized sectors

    The primary objective of having a payments bank is the provision of financial inclusion by -

    →providing small savings accounts

    →remittance of payments services to migrant laborers, low-income groups, small businesses, and other businesses operating in the unorganized sectors

    Number of banks

    As recorded in December 2021, there are 11 small finance banks in India. They are -

    →Capital Small Finance Bank Ltd

    →Au Small Finance Bank Ltd

    →Fincare Small Finance Bank Ltd

    →Equitas Small Finance Bank Ltd

    →ESAF Small Finance Bank Ltd

    →Suryoday Small Finance Bank Ltd

    →Ujjivan Small Finance Bank Ltd

    →Utkarsh Small Finance Bank Ltd

    →North East Small Finance Bank Ltd

    →Jana Small Finance Bank Ltd

    →Shivalik Small Finance Bank Ltd

    India has 6 payments banks as of December 2021. They are -

    →Airtel Payments Bank Ltd

    →India Post Payments Bank Ltd

    →Fino Payments Bank Ltd

    →Paytm Payments Bank Ltd

    →Jio Payments Bank Ltd

    →NSDL Payments Bank Limited

    Minimum Capital Required

    The minimum equity capital paid up for small finance banks is Rs 100 crores

    The minimum equity capital paid up for the payments bank is Rs 100 crores

    Scope

    Provide financial banking assistance only in the country's marginalized and underserved areas

    The payment banks can provide financial assistance in the form of ATM/debit cards and mobile banking

    Credit cards cannot be issued by them

    Time Deposit

    Recurring and Fixed Deposits are accepted by the Small Finance Banks

    Time deposits are not accepted by these banks

    Loans

    They can offer small loans

    They are not eligible to offer any loan

    Restrictions

    They are like normal banks operating in underprivileged areas

    No financial restrictions are imposed on their functioning

    They are not eligible to set up subsidiaries for undertaking services related to non-banking financial activities

    First Launched

    India's first small finance bank was Capital Small Finance Bank, which was launched in 2016

    India's first payments bank was Airtel Payments Bank, which was also launched in 2016

    Key Difference Between Small Finance Bank and Payment Bank

    Prepaid card issuers, retail chains, telecom firms, corporates, real estate sector co-ops, NBFCs, business correspondents and PSUs can all promote Payment Banks. Individuals with a minimum of 10 years of experience in NBFCs, finance, local area banks, and other small finance banks promote them.

    The payment banks can accept only demand deposits and hold up to Rs 1 lakh per individual. Small finance banks can offer all types of deposits, such as savings, FDs, RDs, current accounts, and savings.

    Insurance policies, mutual funds, and other financial products that come with low risk are allowed to be distributed by payment banks. Small Finance banks must ensure that the advances and loans do not exceed Rs. 25 Lakh and must constitute a minimum of 50% of their loan portfolio.

    स्रोत : byjusexamprep.com

    Small Finance Bank vs Payments Bank

    What is the difference between Small Finance Banks and Payments Banks in India? Download Small Finance Bank vs Payments Bank notes PDF and prepare for UPSC 2023

    The Small Finance Banks and the Payments Banks in India are both licensed under the Reserve Bank of India, and all its guidelines and functioning is monitored by the central bank of the country. Discussed further below are the differences between the two banks for the reference and understanding of all competitive exam aspirants.

    Small finance banks are financial institutions that provide financial services to the country’s unserved, underserved and unbanked areas of the country. To know “What are the features of small finance banks?”, visit the linked article.

    A payments bank operates on a smaller scale without involving any credit risk. It is a new model of banking in India, conceptualised by the central bank of India. To know about the history, background and regulations of Payments Bank, visit the linked article.

    The difference between the two types of banks will widen the knowledge of government and IAS Exam aspirants about the basic banking industry in the country. Thus, candidates must carefully analyse the points of difference.

    Small Finance Banks vs Payments Bank [UPSC Notes]:-Download PDF Here

    Small Finance Bank vs Payments Bank

    Given below is a tabulated difference, comparing the aspects, guidelines and functions of the given two types of banks in India:

    Small Finance Banks Payments BankDefinition – Small Finance Banks are financial institutions that intend to fund the financial needs of the underprivileged sections through basic banking activities Definition – A Payments Bank is like any other bank, but operating on a smaller scale without involving any credit risk. It can carry out most banking operations but can’t advance loans or issue credit cards.Objectives:

    These have been set up to further financial inclusion by:

    supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities

    Objectives:

    The primary objective of setting up payments banks will be to further financial inclusion by providing:

    small savings accounts

    payments/remittance services to migrant labour workforce, low-income households, small businesses, other unorganised sector entities

    How many Small Finance Banks are in India?

    As of December 2021, there are 11 Small Finance Banks in the country:

    Au Small Finance Bank Ltd.

    Capital Small Finance Bank Ltd

    Fincare Small Finance Bank Ltd.

    Equitas Small Finance Bank Ltd

    ESAF Small Finance Bank Ltd.

    Suryoday Small Finance Bank Ltd.

    Ujjivan Small Finance Bank Ltd.

    Utkarsh Small Finance Bank Ltd.

    North East Small Finance Bank Ltd

    Jana Small Finance Bank Ltd

    Shivalik Small Finance Bank Ltd

    How many Payments banks are in India?

    As of December 2021, there are 6 Payments Bank in India:

    Airtel Payments Bank Ltd

    India Post Payments Bank Ltd

    FINO Payments Bank Ltd

    Paytm Payments Bank Ltd

    Jio Payments Bank Ltd

    NSDL Payments Bank Limited

    Capital Requirement:

    The minimum paid-up equity capital for small finance banks is Rs.100 crore

    Capital Requirement:

    The minimum paid-up equity capital of the payments bank is Rs.100 crore

    Scope of Activities:

    Take up all primary banking activities only in the underserved section

    Scope of Activities:

    ATM/Debit cards can be issued

    Credit cards cannot be issued

    Mobile banking available

    Time Deposit:

    Time Deposit such as Fixed Deposit (FD) and Recurring Deposit (RD) are both accepted

    Time Deposit:

    These do not accept time deposits like FD and RD

    They can offer small loans They cannot offer loans

    There is no restriction in the area of operations of small finance banks The payments bank cannot set up subsidiaries to undertake non-banking financial services activities

    Capital Small Finance Bank, launched in 2016 was India’s first Small Finance Bank Airtel Payments Bank, introduced in 2016, became India’s first entity to receive a payments bank license from RBI

    There are a few similarities also between the two banks. One of which is that the foreign shareholding in these banks would be as per the Foreign Direct Investment (FDI) policy for private sector banks.

    Apart from the Small Finance Banks and Payments Bank, there are various other categories of banks in India, candidates can learn about each one of them in detail at the Types of Banks in India page.

    Also, all government exam aspirants can refer to 100+ Difference Between Articles, from different fields and subjects at the linked article. This shall prove to be helpful with the competitive exam preparation.

    Other Related Links:

    History of Banking in India

    Functions of Bank

    List of Co-operative Banks in India

    What is the difference between a Bank and NBFC?

    Non-Banking Financial Institutions

    Small Finance Banks vs Payments Bank [UPSC Notes]:-Download PDF Here

    Banking, its related terms, and its types are an important topic from the perspective of government and civil service exam. Such questions can be included in the general awareness/current affairs part and can be easy scorers. Thus, candidates must focus on the details discussed above in this article.

    स्रोत : byjus.com

    Small Finance Bank (SFB) Vs Payment Banks (PB): Difference

    Check out the Difference Betwweb Small Finance Bank (SFB) Vs Payment Banks (PB). Basic objectives of setting up of small finance banks.

    Small Finance Bank (SFB) Vs Payment Banks (PB): Difference

    Updated on: August 24, 2022 by Raju Choudhary

    Small Finance Bank (SFB): Basic objectives of setting up of small finance banks are : To promote financial inclusion through “(a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations”.Content in this Article

    1. Small Finance Bank (SFB)

    2. Payment Banks (‘PB’)

    3. Difference Between Payment Banks and Small Finance Banks

    Small Finance Bank (SFB)

    SFBs can be promoted by resident individuals/professionals with 10 years of experience in banking and finance as well as companies and societies owned and controlled by residents. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents are also permitted to convert themselves in to SFBs. Promoter/promoter groups should have a five year successful record of professional experience or of running their businesses are eligible to promote small finance banks.

    Scope of activities for SFBs include acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. There are no restrictions in the area of operations of small finance banks.

    The minimum paid-up equity capital for SFB should be Rs. 100 crore. The promoter’s minimum initial contribution has to be at least 40% of paid-up equity capital of and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank. The foreign shareholding is allowed and would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time. SFBs are subject to all prudential norms applicable to existing Commercial banks including CRR, SLR.

    The small finance banks will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank. At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh. If a SFB wants to convert in to a universal bank, it would be subject to fulfilling minimum paid-up capital / net worth requirement as applicable to universal banks, its track record of performance as a SFB and the RBI’s due diligence exercise.

    For granting of licenses an External Advisory Committee (EAC) comprising eminent professionals will evaluate the applications. On the basis of evaluation, RBI will issue an in-principle approval for setting up of a SFB or otherwise. RBI decision will be final. The in-principle approval issued by the Reserve Bank will be valid for eighteen months.

    Payment Banks (‘PB’)

    Payment banks were set up to increase 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”.

    Payment Banks can be promoted by:

    (i) Existing non-bank Pre-paid Payment Instrument (PPI) issuers;

    (ii) Individuals/professionals;

    (iii) NBFCs, Corporate Business Correspondents(BCs);

    (iv) Mobile telephone companies;

    (v) Super-market chain;

    (vi) Companies;

    (vii) Real sector cooperatives; that are owned and controlled by residents; and

    (viii) Public sector entities.

    A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. Scheduled commercial banks can take equity stake as permitted under Section 19 (2) of the Banking Regulation Act. Promoter/promoter groups should be ‘fit and proper’ with a sound track record of professional experience or running their businesses for at least a period of five years in order to be eligible to promote payments banks.

    PBs can accept demand deposits and they will initially be restricted to hold a maximum balance of Rs. 100,000 per individual customer. PBs are also permitted to issue ATM/debit cards (but cannot issue credit cards); offer Payments and remittance services through various channels; function as Business Correspondent of another bank as per RBI guidelines; distribute non-risk sharing products like mutual fund units and insurance products, etc.

    PBs cannot undertake lending activities. Apart from maintaining CRR with the RBI, a PB is required to invest minimum 75% of its “demand deposit balances” in SLR securities with maturity up to one year and hold maximum 25% in current and time/fixed deposits with other Scheduled Commercial banks for operational and liquidity management.

    A PB should have a minimum paid-up equity capital of Rs. 100 crore with a leverage ratio not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves). Minimum initial contribution from the promoter will be 40% of the paid-up equity capital of the PB for the first five years from the commencement of its business. Foreign shareholding is allowed and is subject to prevailing FDI policy applicable for private sector banks.

    स्रोत : bank.caknowledge.com

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