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Tamil Nadu government plans to apply for payments bank license: Report

The concept was introduced by the RBI to offer flexibility in banking but many payments banks are now running losses.

The Tamil Nadu government is planning to apply for a payments bank license from the Reserve Bank of India (RBI), Hindustan Times reported on November 2. If granted, it will be the first state to get such a license.

A payment bank license allows an entity to offer many of the same facilities as a regular bank such as savings accounts, remittance facilities, and debit cards but not lending facilities like loans and credit cards.

Why does Tamil Nadu want a payments bank license?

The state is seeking to set up a payments bank to efficiently manage its funds and monitor its disbursal through various welfare schemes, the state’s Minister of Finance Palanivel Thiaga Rajan said according to HT.

This is one among the several measures the government is taking to ensure that the funds meant for social welfare schemes do not lay idle, aren’t delayed, or used for another purpose. Rajan revealed that the special task force set up by the government in August to reconcile accounts and identify lapsed funds tracked funds worth Rs 2000 crores which were not utilised by various district administrations and departments and remained out of the purview of the government’s accounting system.

“The 2,000 crore that can be remitted back to the treasury is just a trailer…I don’t want to commit any amount but I am sure several thousand crore rupees will be remitted back to the government account in the next few months as the task force continues to analyse” – Rajan as reported by HT

The state government is setting up a public financial management system to ensure that these funds do not remain idle in the future and reach the intended beneficiary, Rajan said. Along with using a payments bank to help achieve this, the state is also looking to use interfaces like UPI and Google Pay, Rajan added.

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The state finance minister said that the process to obtain a license will take roughly 18 months after the state submits the necessary papers. “We have to build the infrastructure first and meet the standards of the Reserve Bank of India,” HT reported Rajan as saying.

More about payments banks

The concept of payments bank was introduced by the RBI in 2014 to offer flexibility in banking and to promote digital initiatives. Airtel, Paytm, India Post, and Jio are among the few that currently hold a payments bank license.

However, many of these banks are currently running losses. To improve this situation, earlier this year, the RBI decided to increase the deposit limit for payments banks to Rs 2 lakh per individual customer from Rs 1 lakh. The government has also appointed an external advisory committee to review the eligibility of payments banks to convert to a universal bank or small finance bank and begin lending.

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