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New Banking Paradigm

ET Cases, 4 pages
AUTHOR(S) : Y. Bala Bharathi and Dr. Nagendra V. Chowdary

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New Banking Paradigm


Expected Learning Outcomes

• Understand the need for Payment Banks
• Understand the concept and distinguishing (operational) characteristics of Payment Banks
• How Payment Banks contribute to financial inclusion with their unique model should be well understood



I. Indian Financial System, Indian Banking Structure and Gap Analysis

1. What do you understand by Indian financial system? What are its components?
2. What do you understand by Indian banking structure and what are its constituents?
3. What are the services provided by commercial or universal banks?
4. ....................


Teaching Note Preview

New Banking Paradigm



Payment Bank is a new initiative from RBI that intends to bring in the ‘unbanked’ population (around 50% of the Indian population) into the mainstream Indian banking. As Payment Banks are touted to serve the purpose of financial inclusion with their distinctive characteristics, this case flyer, based on the accompanying article1, can be used to understand the concept and connotations of Payment Banks.

Case Positioning and Case Setting

This case flyer can be used either at Undergraduate or Post Graduate level to understand the need, importance and unique characteristics of Payment Banks

Preamble to the Case Flyer Analysis

Only 40-50% of Indians have accounts with financial institutions, according to the KPMG estimates. To service the remaining population, RBI has created two new banking categories, called small finance banks and Payment Banks. Payment Banks are meant for simple banking transactions. These banks will not be allowed to lend or accept term deposits. Customers cannot deposit more than 1 lakh in their account. As none of the banks are yet operational, it is very difficult to predict who would make the cut with their profitability and Unique Selling Proposition (USP). This case flyer is meant to provide the canvas of the Indian financial system, Indian banking system and discuss about the distinguishing characteristics of Payment Banks. Accordingly, this case flyer was orchestrated as shown in Exhibit (TN)-I.....................

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Product code: BFS-4-0001, BFS-4-0001A


This case flyer and the base article ("New Banking Paradigm' by Shinjini Kumar in The Economic Times, dated: August 26th 2015) are meant to introduce the participants/students to the concept, the need and important distinguishing characteristics of payment banks. Based on recommendations of Nachiket Mor (Mor) Committee (December 2013) and keeping in line with global trends, the Reserve Bank of India (RBI) granted 'in-principle' approval to 11 Payment Banks on February 19th 2015. Six out of these 11 licensees feature amongst India's largest business houses (Reliance, Airtel, Aditya Birla Nuvo, Tech Mahindra, Sun Pharmaceuticals and Cholamandalam Investment). Payment Banks differ from conventional banks as they are not allowed to lend to customers or issue credit cards. However, they can accept deposits of up to ₹1 lakh, offer CASA deposits, issue debit cards and offer internet banking. These banks were given 18 months to comply with all the conditions laid out by the RBI. How do these Payment Banks work? How would they benefit customers? How would these Payment Banks aid the Indian Financial System? How would be these banks' profitability affected because of the latent competition from universal banks?

Pedagogical Objectives

  • To have an overview of the Indian financial system and Indian banking structure to understand and fill the gaps in financing small businesses and low-income households
  • To understand the concept, need and important distinguishing characteristics of Payment Banks
  • To examine how Payment Banks can contribute to the financial inclusion and aid in bringing in the unbanked to the mainstream economy

Case Positioning and Setting
This case flyer can be used for both Undergraduate and Post Graduate level to understand the need and unique characteristics of Payment Banks

This Case Pack Includes:
- Abstract
- Case Flyer
- Analysis
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