The concept of Payments Banks emerged from the recommendations of the Nachiket Mor Committee, which was constituted by the Reserve Bank of India (RBI) on 23 September 2013 under the chairmanship of Nachiket Mor. The committee was tasked with suggesting measures to improve financial inclusion and access to banking services for small businesses and low-income households. On 7 January 2014, the committee submitted its final report and recommended the creation of a new category of banks known as Payments Banks to provide basic banking and payment services to the unbanked population.
Following these recommendations, the RBI released draft guidelines for Payments Banks on 17 July 2014 and invited comments from stakeholders and the public. After considering the feedback, the RBI issued the final guidelines on 27 November 2014. In February 2015, the RBI published a list of 41 applicants that had applied for Payments Bank licences. An External Advisory Committee headed by Nachiket Mor was formed to evaluate these applications. During the Union Budget presentation on 28 February 2015, it was announced that the postal network would also be utilized for setting up a Payments Bank.
The advisory committee submitted its recommendations on 6 July 2015, and on 19 August 2015, the RBI granted “in-principle” approval to 11 entities to establish Payments Banks. These approvals were valid for 18 months, during which the entities had to meet all regulatory requirements before obtaining a full banking licence under the Banking Regulation Act, 1949.
Payments Banks quickly gained popularity in digital banking and mobile transactions. By March 2019, Paytm Payments Bank accounted for more than 19% of all mobile banking transactions in the country, while Airtel Payments Bank contributed over 5%. Together, Paytm Payments Bank and Airtel Payments Bank held more than 88% of the total deposits among Payments Banks in India. Their rapid growth highlighted the increasing acceptance of digital banking and cashless transactions.
However, despite strong transaction volumes, Payments Banks faced profitability challenges. According to RBI’s report on the “Trend and Progress of Banking in India 2017–18,” most Payments Banks reported losses during the financial year 2017–18, following weak financial performance in 2016–17. The restrictions on lending activities and dependence on fee-based income remained major challenges for achieving profitability.
Overall, the introduction of Payments Banks marked a significant step toward financial inclusion in India by expanding access to digital banking, payment services, and formal financial systems for millions of people.