Will Payments Banks Help Foster Financial Inclusion?

Unlike jurisdictions such as Singapore, India did not (until very recently) have differentiated licensing for banks, i.e. granting licences for conducting a specific line of banking business. The prevalence of universal banking licences coupled with the burden of fulfilling increasingly stringent prudential norms meant that banks that received licences rarely ventured outside Indian cities which were their main profit centres. Consequently, the avowed goal of successive central governments to make basic banking services available to all citizens was not fulfilled.

While the Reserve Bank of India (RBI) tried to work around this roadblock through means like allowing banks to use business correspondents, linking branch expansion to the opening of branches in lesser banked areas, and offering incentives for priority-sector lending, the lack of commercial viability meant that millions of Indian citizens in rural and lesser banked areas did not have access to basic banking