{"id":7181,"date":"2021-07-29T09:52:03","date_gmt":"2021-07-29T09:52:03","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7181"},"modified":"2021-07-29T09:56:39","modified_gmt":"2021-07-29T09:56:39","slug":"difference-between-small-finance-and-payment-banks-in-india","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/","title":{"rendered":"Difference Between Small Finance and Payment Banks in India"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In India, the Reserve Bank of India permits two banking licenses to financial organisations for different objectives and provides financial services to various clients. Besides the <strong><em>Universal Bank License<\/em><\/strong>, commercial banks such as Axis, ICICI, HDFC, etc. The Reserve Bank of India grants what is known as the <strong><em>Differentiated Bank License<\/em><\/strong> to cater to niche banks. Amongst, we have primarily two types of banking institutions \u2013 Small Finance and Payment Banks. Scroll down to check the difference between Small Finance Banks and <a href=\"https:\/\/swaritadvisors.com\/payment-bank-license\" class=\"text-primary\"><strong>Payment Banks<\/strong><\/a> in India. Before discussing the difference between Small Finance and Payment Banks, let us first understand the meaning of Small Finance Banks and Payment Banks.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3abb1b16e36\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3abb1b16e36\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#Small_Finance_Banks_%E2%80%93_Meaning\" title=\"Small Finance\nBanks &#8211; Meaning\">Small Finance\nBanks &#8211; Meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#Payments_Bank_Meaning\" title=\"Payments Bank:\nMeaning\">Payments Bank:\nMeaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#Differentiated_Banks_and_Universal_Banks_%E2%80%93_Know_the_Difference\" title=\"Differentiated\nBanks and Universal Banks \u2013 Know the Difference\">Differentiated\nBanks and Universal Banks \u2013 Know the Difference<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#What_is_the_Key_Difference_Between_Small_Finance_and_Payment_Banks_in_India\" title=\"What is the Key Difference Between Small Finance and Payment Banks in India?\">What is the Key Difference Between Small Finance and Payment Banks in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#Comparison_Table_Between_Small_Finance_and_Payment_Banks\" title=\"Comparison Table Between Small Finance and Payment Banks \">Comparison Table Between Small Finance and Payment Banks <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/difference-between-small-finance-and-payment-banks-in-india\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Small_Finance_Banks_%E2%80%93_Meaning\"><\/span>Small Finance\nBanks &#8211; Meaning<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Small\nFinance Banks are financial organisations that deliver financial support to the\ncountry&#8217;s unbanked and unwarranted areas. They are registered as a Public\nLimited Company in the Companies Act, 2013. Like other traditional banks, such\nbanks can engage in all fundamental banking activities, like accepting deposits\n&amp; lending.<\/p>\n\n\n\n<p><strong><em>These\nbanks will be established with the aim of increasing financial addition by:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Providing savings vehicles;<\/li><li>Providing credit to small\nbusinesses, marginal &amp; small farmers, small &amp; micro industries, and\nother unorganised sector companies via high-tech, low-price activities.<\/li><\/ul>\n\n\n\n<p>Small\nFinance Banks cannot extend huge loans and cannot suggest subsidiaries or trade\nin high technology products.<\/p>\n\n\n\n<p><strong><em>Following\nis the list of Small Finance Banks in India:<\/em><\/strong><\/p>\n\n\n\n<ol><li>Ujjivan Small Finance Bank;<\/li><li>Equitas Small Finance Bank;<\/li><li>ESAF Small Finance Bank;<\/li><li>Suryoday Small Finance Bank;<\/li><li>Fincare Small Finance Bank;<\/li><li>Janalakshmi Small Finance Bank;<\/li><li>Utkarsh Small Finance Bank and,<\/li><li>A U Small Finance Bank.<\/li><\/ol>\n\n\n\n<p>In\nIndia, Small Finance Banks are a type of speciality bank. Small Finance Banks\nare allowed to execute essential fundamental services like lending and deposit\nacceptance. The objective is to bring financial inclusion to parts of the\neconomy that are not supported by other banks like small businesses, small\n&amp; marginal farmers, unorganised sector companies, micro &amp; small\nbusinesses.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Payments_Bank_Meaning\"><\/span>Payments Bank:\nMeaning<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>These banks are set up to promote financial inclusion by providing: \u201cmodest savings accounts and remittance or payments services to migratory labours, low-salary households, small enterprises, other unorganised sector companies, and other users\u201d. \u00a0Clients will not be able to borrow from them, and they would be forced to invest their money in bank deposits and government bonds.<\/p>\n\n\n\n<p><strong><em>Following\nis the list of active Payments Bank in India:<\/em><\/strong><\/p>\n\n\n\n<ul><li>India Post Payments Bank<sup><a href=\"https:\/\/www.ippbonline.com\/\" class=\"text-primary\">[1]<\/a><\/sup>;<\/li><li>Paytm Payments Bank;<\/li><li>Fino Payments Bank;<\/li><li>NSDL Payments Bank;<\/li><li>Airtel Payments Bank;<\/li><li>Jio Payments Bank.<\/li><\/ul>\n\n\n\n<p>The\nRBI (Reserve Bank of India) analysed Payments Banks as a new form of the bank\nin India. These banks can accept a confined deposit, which is now capped at Rs.\nTwo lakhs per person but could be raised in the future. These financial banks\nare not able to offer credit cards or loans. Banks of this type can handle both\nsavings and current accounts. Payments Banks can deliver Debit Cards and ATMs\nas well as online &amp; Mobile Banking.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Differentiated_Banks_and_Universal_Banks_%E2%80%93_Know_the_Difference\"><\/span>Differentiated\nBanks and Universal Banks \u2013 Know the Difference<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Differentiated\nbanks are unique from Universal Banks such as Commercial Banks like SBI, ICICI,\nHDFC, etc., as they are infused as niche segments. Generally, niche banks\ntarget a particular market and adapt the bank&#8217;s activities to this target\npreference of the market. The separation could be on account of capital\nnecessity, the scope of the area of operations or activities. They provide a\nlimited range of products or services or functions under a different regulatory\ndispensation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Key_Difference_Between_Small_Finance_and_Payment_Banks_in_India\"><\/span>What is the Key Difference Between Small Finance and Payment Banks in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following\nare some key differences between Small Finance and Payment Banks in India:<\/p>\n\n\n\n<ol><li>The share of promoters in\nPayment Banks should be 40% for the first five years from the commencing date\nof their business, whereas for Small Finance Banks the first 40% share can be\nsteadily brought down over a time duration of twelve years to 26%;<\/li><li>Payments Banks are permitted to\ndistribute insurance policies, mutual funds, and other identical no n-risk\nsimple monetary products. Whereas, Small Finance Banks should make sure that\nadvances &amp; loans, not surpassing Rs. 25 lakhs, must constitute at least 50%\nof its loan selection;<\/li><li>Payments Banks can be\nencouraged by telecom entities, PSUs, NBFCs (Non-Banking Financial Companies),\nsupermarket chains, corporate, prepaid card issuers, etc. Whereas, Small\nFinance Banks are encouraged by individuals with at least ten years of\nexperience in NBFCs, finance local area banks, etc.;<\/li><li>Payment Banks are restricted to\nonly accepting DDs (Demand Deposits) and hold up to Rs. Ten lakhs per\nindividual. Small Finance Banks can take all types of DDs (like Conventional\nBanks) like RD, FD, Current and Savings, etc.<\/li><\/ol>\n\n\n\n<p>Hence,\nwe can see that both Small Finance and Payment Banks in India are niche banks,\nthe primarily previous caters to small scale industries and farmers, whereas\nthe latter is geared to deliver remittance services for migratory labours and identically\nunorganised sectors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Comparison_Table_Between_Small_Finance_and_Payment_Banks\"><\/span>Comparison Table Between Small Finance and Payment Banks <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Below\nis the comparison table between Small Finance Banks and Payment Banks:<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Points<\/strong>\n  <\/td><td>\n  <strong>Small\n  Finance Bank<\/strong>\n  <\/td><td>\n  <strong>Payments\n  Bank<\/strong>\n  <\/td><\/tr><tr><td>\n  <strong>Credit\n  Card<\/strong>\n  <\/td><td>\n  They can issue credit cards\n  <\/td><td>\n  Can\u2019t issue any credit cards\n  <\/td><\/tr><tr><td>\n  <strong>Client\n  Reach<\/strong>\n  <\/td><td>\n  Clients are reached via the\n  branches of the company\n  <\/td><td>\n  Clients are reached via\n  Mobile Bankings.\n  <\/td><\/tr><tr><td>\n  <strong>Capital\n  Required <\/strong>\n  <\/td><td>\n  Minimum Paid-up Capital is\n  Rs. 100 crores\n  <\/td><td>\n  Minimum Paid-up Capital is\n  Rs. 100 crores\n  <\/td><\/tr><tr><td>\n  <strong>Share\n  of Promoter<\/strong>\n  <\/td><td>\n  40% in the starting, then\n  after 12 years it can be reduced to 26%\n  <\/td><td>\n  40% for the initial five\n  years from the commencement date of business start-up.\n  <\/td><\/tr><tr><td>\n  <strong>Time\n  Deposit<\/strong>\n  <\/td><td>\n  They can accept time deposits\n  like Recurring and Fixed Deposit\n  <\/td><td>\n  Cannot accept Time Deposit\n  like Recurring and Fixed Deposits.\n  <\/td><\/tr><tr><td>\n  <strong>Loan<\/strong>\n  <\/td><td>\n  They can offer small loans\n  <\/td><td>\n  Can&#8217;t provide any loans\n  <\/td><\/tr><tr><td>\n  <strong>Branches<\/strong>\n  <\/td><td>\n  Around 25% of branches should\n  be in rural areas for the initial three years\n  <\/td><td>\n  Should have 25% branches in\n  rural areas.\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>From above, it is clear that Small Finance Banks and Payment Banks are different from Commercial Banks. Small Finance Banks and Financial Banks provide a limited range of services and products to the clients to furnish financial inclusion to unserved sections and untapped sections of the Indian population.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/rbi-issue-guidelines-for-licensing-of-small-finance-banks-in-the-private-sector\/\">RBI Issue Guidelines for Licensing of Small Finance Banks in the Private Sector<\/a><\/mark><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In India, the Reserve Bank of India permits two banking licenses to financial organisations for different objectives and provides financial services to various clients. Besides the Universal Bank License, commercial banks such as Axis, ICICI, HDFC, etc. The Reserve Bank of India grants what is known as the Differentiated Bank License to cater to niche [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7182,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[56],"tags":[779],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7181"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=7181"}],"version-history":[{"count":6,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7181\/revisions"}],"predecessor-version":[{"id":7189,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7181\/revisions\/7189"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7182"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7181"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7181"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7181"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}