Indian payments banks are planning to approach the Reserve Bank of India (RBI) to let them offer micro-lending services.
The entities will reach out to the central bank under the banner of the Payments Council of India (PCI).
They hope to secure RBI’s approval to allow payments banks with a certain track record to offer micro loans of up to INR100,000 ($1,267).
According to the Financial Express, the payments banks had approached the banking regulator with a similar request last year.
Currently, payment banks are not allowed to lend but they can accept demand deposits with balances up to INR200,000 and cross-sell other financial services.
“We are seeking permission to give micro-loans only to individuals. The RBI’s concerns around lending by conglomerates having non-financial businesses has to do with connected lending. Those concerns don’t arise when it comes to micro-lending,” an unnamed source told the publication.
Among leading payment banks in India are Airtel Payments Bank and Jio Payments Bank, which conglomerates with interests in non-financial businesses control.
The payments banks in India are believed to be lagging due to the non-remunerative nature of payment transactions in the country.
According to the analysts at Moody’s, with an open architecture Unified Payments Interface (UPI), the primary network for digital transactions in India levels the playing field for all companies.
Notably, payments banks with five years of operational background can seek permission to convert into small finance banks but they are yet to make a move in that direction.
According to the RBI, payments banks require extensive investments to develop basic infrastructure as they are still at a nascent stage.
Last month, media reports said that the RBI keeping a close eye on the rapid expansion of neo banking business model in the country.
