Payment Banks Seek Relaxation in RBI Norms

India’s payment banks have renewed their push for regulatory easing, requesting the Reserve Bank of India (RBI) to reduce the Statutory Liquidity Ratio (SLR) requirement, allow small-ticket lending, and increase the deposit cap per customer. These demands aim to enhance profitability, expand their financial services offerings, and address the viability challenges inherent in their business model.

Key Demands from Payment Banks

1. Reduction in SLR from 75% to 65% or Lower

• Current SLR Norm:
  • Payment banks must invest 75% of their demand deposits in government securities (G-Secs) with maturities up to 1 year.
  • The remaining 25% must be held in current or fixed deposits with scheduled commercial banks.
• Banks’ Request:
  • Reduce SLR by at least 10 percentage points.
  • Permit investment in longer-tenure government securities to increase yield.
• Rationale:
  • Current restrictions limit margin growth.
  • A reduction could improve net interest margins (NIMs) by 50 bps to 1%.

2. Permission to Offer Small Loans

• Current Restriction:
  • Payment banks are not allowed to lend under RBI’s differentiated licensing regime.
• Request:
  • Permit small-ticket loans of up to ₹5 lakh.
• Justification:
  • Enable revenue diversification.
  • Support financial inclusion with regulated micro-credit offerings.

3. Enhancement of Customer Deposit Cap

• Current Limit:
  • Only ₹2 lakh per customer in savings accounts.
  • No permission to accept fixed or recurring deposits.
• Proposal:
  • Raise the deposit limit to ₹5 lakh per customer.

Operational Context

• Leading Payment Banks in India:
  • India Post Payments Bank
  • Airtel Payments Bank
  • Fino Payments Bank – Also applied for a Small Finance Bank (SFB) license
  • Paytm Payments Bank, Jio Payments Bank, NSDL Payments Bank
• Profitability Challenge:
  • Low-yielding SLR investments constrain NIMs, e.g., Fino reported ~2.5% NIM.
  • Treasury operations form the core income source, in absence of lending rights.

TET